The USD/JPY extends its comeback above 136.60, as investors become risk-averse in front of Jackson Hole

During the Tokyo session, the USD/JPY pair broke to the upside from the consolidation built inside a limited range of 136.40-136.56. After surpassing the immediate barrier of 136.60, the asset has extended its advances as investors shift back behind the US dollar index (DXY) ahead of the Jackson Hole Economic Symposium.

The market participants are becoming increasingly risk-averse as a result of the unpredictability surrounding the Jackson Hole conference of global think tank heads. The focus will stay on Federal Reserve (Fed) head Jerome Powell, as investors will receive actual indications on the probable monetary policy action by the Fed during the September monetary policy meeting.

As long as the inflation rate is above 8%, the Federal Reserve will most likely adhere to its aggressive rate hike plan. Undoubtedly, Fed policymakers have evidence that pricing pressures are nearing exhaustion, but the entire inflation conundrum must be resolved sooner. Therefore, additional rate hikes will be debated at the cost of a further decline in economic activity in the United States. Well, these are the repercussions that investors must endure as a result of the Fed's tardy response to rising inflationary pressures.

On the Tokyo front, the Japanese yen is expected to decline further since the Bank of Japan (BOJ) would maintain its conservative monetary policy even if inflation reaches 3 percent. BOJ's conservative posture is a result of both the low inflation rate and the stagnant labor cost index. As Japan's economy fails to increase the wage rate, a neutral attitude by the BOJ may exacerbate economic difficulties.