- USD/JPY weakens to near 146.05 in early Asian session on Thursday, down 0.45% on the day.
- The BoJ’s Summary of Views from the July meeting indicated that some members suggested a neutral rate of at least 1%.
- Markets continue to price in a 50bps rate cut by the Fed in September.
The USD/JPY pair is holding around 146.05 after retreating from a weekly high of 147.90 during early Asian trading hours on Thursday. The pair’s decline is largely supported by the softer US Dollar (USD) and safe-haven flows. Traders are looking forward to the weekly US Initial Jobless Claims on Thursday for fresh impetus. This report could provide confirmation on the US economic and labor market conditions.
The Bank of Japan’s (BoJ) Summary of Views at the July 30-31 Monetary Policy Meeting, released on Thursday, showed the Japanese central bank laying the groundwork for further policy normalization, although members did not specify the timing and pace. BoJ members suggested a neutral rate of at least 1% as a medium-term target. Board members also noted that they expect a small hike to have no tightening effect.
On Wednesday, BoJ Deputy Governor Uchida said: “I think the bank needs to maintain monetary easing at the current policy interest rate for the time being as developments in domestic and international financial and capital markets are extremely volatile.” Uchida suggested that the BoJ would not raise rates if markets were unstable. Dovish comments from Japanese authorities are likely to undermine the JPY for the time being. The BoJ is now expected to only hike 15 basis points (bps) over the next 12 months, down from the 50 bps expected just after its hawkish hike.
Meanwhile, rising geopolitical tensions in the Middle East could boost a safe-haven currency like the JPY. Al Arabiya news agency reported that US officials are confident that a response from Hezbollah and Iran is imminent, with an initial assessment predicting an attack earlier in the week, but more recent intelligence showed any response could be delayed until Thursday or Friday.
Mounting bets on US interest rate cuts in September could put some selling pressure on the dollar. According to the CME’s FedWatch tool, rate markets have priced in a roughly 83% probability of a 50 basis point (bps) rate cut by the Fed in September, with two further cuts expected over the remainder of 2024.
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.
