The USD/JPY pair rises to 137.40 on hawkish Fed Powell comments, BoJ policy, and US employment data

The USD/JPY pair has risen to around 137.40 in the early Asian session, following an unusual upward move prompted by hawkish comments made by Federal Reserve (Fed) chair Jerome Powell in his congressional testimony.

After a sharp decline on Tuesday, S&P500 futures posted modest gains, which may be indicative of minor short coverings amid a bearish market sentiment. As the likelihood of a U.S. economic recession increased, the US Dollar Index (DXY) reached a three-month high above 105.60 on Tuesday.

In his testimony before Congress, Fed Chairman Powell disclosed a new strategy for combating inflation. As the current monetary policy is insufficient to achieve price stability, there will be an increase in interest rates in the future. According to Fed Chairman Powell's testimony, investors should anticipate a greater number of rate hikes than previously anticipated because economic indicators indicate that inflationary pressures are strong.

Investors should be aware that this was Powell's first comment on interest rates after observing resiliency in consumer spending and an optimistic labor market in January's economic data.

In the future, it will be of the utmost significance to release the US Automatic Data Processing (ADP) Employment Change (Feb) data. The economic data is expected to be 200K higher than the previous release of 106K.

Friday's release of Governor Haruhiko Kuroda's concluding monetary policy statement by the Bank of Japan (BoJ) is avidly anticipated by investors in Tokyo. As the economy focuses on increasing the labor cost index, it is highly probable that monetary policy will remain extremely lenient. The market responds in a variety of ways when yields on Japanese Government Bonds are modified (JGBs).