- USD/JPY extends its one-week range-bound consolidation sideways movement.
- Uncertainty over BoJ rate hike and positive risk tone weaken JPY, providing support.
- Expectations of further Fed rate cuts keep USD bulls on the defensive and act as a headwind.
The USD/JPY pair is struggling to capitalize on the previous day’s good bounce from the 146.00 round figure, or the weekly low, and is hovering in a narrow trading band during the Asian session on Thursday. However, the pair is holding comfortably above the 147.00 level and remains confined in a one-week range as traders await fresh catalysts before positioning for a firm near-term direction.
Uncertainty over the timing of the Bank of Japan (BoJ) next rate hike is holding traders back from placing aggressive bets and leading to range-bound price action for the USD/JPY pair. Indeed, the Japanese central bank raised the key interest rate to around 0.25%, or the highest level since 2008, at the end of the July policy meeting and outlined a plan to taper its bond-buying program.
Adding to this, BoJ Governor Kazuo Ueda said the central bank will continue to raise rates and adjust the degree of easing if the current economic and price outlook materializes. This view was supported by the summary of views from the BoJ’s July policy meeting. That said, BoJ Deputy Governor Shinichi Uchida played down the chances of a near-term rate hike amid recent volatility in financial markets.
Apart from this, a generally positive risk tone undermines demand for the safe-haven JPY and continues to offer some support to the USD/JPY pair. However, upside remains limited amid expectations of further interest rate cuts by the Federal Reserve (Fed), reinforced by signs of cooling inflationary pressures in the US, which keeps USD bulls on the defensive and acts as a headwind.
Looking ahead, investors are now looking forward to the US economic docket, which includes the release of monthly retail sales figures, the usual weekly initial jobless claims, the Empire State Manufacturing Index and the Philly Fed Manufacturing Index. Apart from this, US bond yields will boost the USD, which, along with the broader risk sentiment, should provide some impetus to the USD/JPY pair.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets the country’s monetary policy. Its mandate is to issue banknotes and carry out monetary and foreign exchange control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has been pursuing ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflation environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing money to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further relaxed policy by first introducing negative interest rates and then directly controlling the yield on its 10-year government bonds.
The Bank of Japan’s massive stimulus has caused the Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-high inflation. The Bank of Japan’s policy of keeping rates low has led to a widening spread with other currencies, dragging down the value of the Yen.
The weak yen and the surge in global energy prices have caused Japanese inflation to rise, exceeding the Bank of Japan’s 2% target. However, the Bank of Japan judges that a sustainable and stable achievement of the 2% target is still not in sight, so a sharp change in current monetary policy seems unlikely.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
