The Japanese yen gains ground before the records of the BOJ, the USD under pressure in the midst of policy uncertainty

• The Japanese Yen extends his profits against the US dollar, recovering from a minimum of four months of 150.84.
• The US dollar index is stabilized around 9.00-98.80, after going back a maximum of two months of 100.26.
• The minutes of the BOJ meeting are scheduled for publication on Tuesday, which could offer new clues on the road and the time of the next policy movement amid the growing risks of inflation.

The Japanese Yen (JPY) extended his earnings against the US dollar (USD) on Monday, strengthening himself slightly after registering a strong rebound from a minimum of four months of 150.84 after the disappointing US employment report on Friday. The softest impression of the labor market has fed the expectations of a relief of monetary policy by the Federal Reserve (FED) at its next meeting in September, which is weighing on the dollar and increasing the demand of Yen as a safe refuge.

At the time of writing, the USD/JPY pair is around 147.00 during the negotiation hours in America, having renounced the recent profits that were driven by a strong rebound of the US dollar earlier in the early week. Meanwhile, the US dollar index (DXY), which tracks the value of the dollar against a basket of six main currencies, shows signs of stabilization, currently quoting around 98.80 after going back from a maximum of a maximum of two months of 100.26.

The pause in the impulse of the US dollar reflects the growing uncertainty about the next movement of the Fed, since the operators re -evaluate the probability of a rate cut as soon as in September. This change contrasts with the hard line position of the Fed at its last meeting, where officials emphasized a data -dependent approach and indicated persistent inflation risks, especially due to rates and pressures on the offer side. The president of the Fed, Jerome Powell, did not offer a clear guide forward, saying that no decision for September had been made and underlining the need for more evidence of inflation cooling. Even so, with the weakness of the labor market emerging and the internal discontent growing, two Fed governors voted in favor of immediate relief – market participants are increasingly inclined towards a moderate turn.

According to the CME Fedwatch tool, the markets are now valuing a probability of 87.8% of a rate cut of 25 basic points at the September meeting of the Fed. This strong readjustment reflects a growing conviction that the Central Bank will be forced to pivot sooner than later in response to the deteriorated labor market conditions.

Adding to uncertainty, the recent resignation of the governor of the FED, Adriana Kugler, and the announcement of the US president, Donald Trump, that he plans to nominate a replacement this week have introduced new political nuances in the perspective of the Fed. These developments are generating concerns about the independence of the central bank and could further influence the market expectations September.

In Japan, the minutes of the Monetary Policy Meeting of the Bank of Japan (BOJ) are scheduled for publication on Tuesday and will be analyzed closely in search of information about internal policy discussions of the Central Bank. At a press conference last week, the governor of the BOJ, Kazuo Ueda, explained that the Central Bank had unanimously decided to maintain the short -term interest rate without changes, while raising its prognosis of inflation of the underlying consumer for the current fiscal year to 2.7%, from the previous 2.2%. The Governor Ueda emphasized that any future rise in interest rates would depend on the data, and the BOJ would not necessarily wait for the underlying inflation to reach the 2% target before acting. On the other hand, the Central Bank would respond once it becomes “highly probable” that inflation sustainably reaches that level, especially if it is accompanied by a stronger salary growth. Although he acknowledged that the trend of inflation is improving, Ueda said that much of the pressure on prices remains driven by the offer, particularly due to the high food costs. He warned that premature hardening could suppress internal consumption, which is still fragile.

The markets will be attentive to any hard line inclination in the minutes, especially with regard to the time of the next rise in rates, which some analysts expect it to come as soon as in October. Any indication that those responsible for politics are gaining more confidence in the perspective of inflation and salary growth in Japan could strengthen the case for the normalization of politics and offer additional favorable winds to Japanese and in Japanese.