USD/JPY sees a downside to near 134.00

- USD/JPY is likely to drag to near 134.00 as investors have turned precautionary ahead of US Services PMI data.

- Fed’s Evans has favored a higher interest rate peak despite a slowdown in the rate hike pace.

- An upbeat US Services New Orders Index data could propel short-term inflation expectations.

The USD/JPY pair has attempted a break above the immediate hurdle of 134.50 in the Tokyo session. The asset is expected to remain on the tenterhooks as investors are awaiting United States Services PMI data for fresh impetus. The risk profile is still optimistic as Federal Reserve (Fed) policymakers don’t call for the continuation of the current interest rate hike pace.

Chicago Fed President Charles Evans said on Friday, "We are probably going to have a slightly higher peak to Fed policy rate even as we slow pace of rate hikes," as reported by Reuters.

The US Dollar Index (DXY) is hovering around its immediate support of 104.50 and is looking to test Friday’s low around 104.40. The risk appetite theme is likely to keep hammering the US Dollar bulls amid a significant decline in safe-haven’s appeal.

Meanwhile, 10-year US Treasury yields have rebounded after dropping below 3.50% in the Asian session as the market mood is turning precautionary ahead of the US Services PMI data.  As per the projections, the economic data is seen at 55.6 lower than the prior release of 54.4.

In the US Services PMI gamut, the New Orders Index is seen solid at 58.5 against the former release of 56.5. This indicates robust demand ahead, which could de-anchored short-term inflation expectations and henceforth, ruin the risk-on profile.

On the Tokyo front, Bank of Japan (BOJ) Governor Haruhiko Kuroda highlighted the risk of a slowdown in inflation from CY2023. This may propel the BOJ to continue with policy easing in order to keep inflation near the targeted rate of 2%. Going forward, the Overall Household Spending data will be of utmost importance. The economic data is expected to improve to 3.4% from the prior release of 2.3% on an annual basis.

USD/JPY