- Yen trims losses after Kazuo Ueda hinted at further monetary tightening.
- The US PCE Price Index and the NFP report on Friday will determine the direction of the Dollar.
- USD/JPY is approaching an important support zone above 151.65.
The dollar has extended its decline against a somewhat stronger yen on Thursday as Bank of Japan Governor Kazuo Ueda hinted at a possible interest rate hike “if conditions are met.”
The BoJ kept its benchmark interest rate at 0.25%, as expected, but Ueda reiterated that the bank remains committed to normalizing its monetary policy. The Yen appreciated across the board after the press release.
US data will determine the dollar’s near-term direction
Today’s focus is on the release of the US PCE Price Index, which is expected to show that inflation continued to decline towards the Fed’s 2% target rate.
The highlight of the week, however, will be Friday’s Nonfarm Payrolls report. Market consensus anticipates a significant decline, although strong ADP has improved market expectations.
The pair is now approaching the support zone above 151.65. Below here, the next support is 150.60. Resistances are previous support at 152.77 and the October peak at 153.85.
The 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 currency control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked on 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 of banknotes 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 pairs. 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 inflation levels that have been at record highs for decades. The Bank of Japan’s policy of keeping rates low has caused the differential with other currencies to increase, dragging down the value of the Yen.
The weakness of the Yen and the rebound in global energy prices have caused a rise in Japanese inflation, which has exceeded the 2% target set by the Bank of Japan. Even so, the Bank of Japan judges that sustainable and stable achievement of the 2% objective is still not in sight, so a sudden 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.
