- USD/JPY corrects from nearly two-month peak amid renewed intervention fears.
- A change in risk sentiment further benefits the JPY and weighs on the pair.
- Lowering expectations of a 50 basis point rate cut by the Fed next month should limit the pair’s losses.
The USD/JPY pair retreats after touching its highest level since August 16, around the 149.10-149.15 zone and extends the steady intraday decline during the first half of the European session on Monday. Spot prices, for now, appear to have broken a three-day winning streak and fall to the 148.00 mark, or a new daily low in the last hour, although they recover a few pips later.
The Japanese Yen (JPY) is strengthening across the board after comments from Japan’s Deputy Finance Minister for International Affairs Atsushi Mimura fueled speculation about possible intervention. In addition to this, a change in global risk sentiment, coupled with escalating geopolitical tensions in the Middle East, is driving some safe-haven flows into the JPY and putting some bearish pressure on the USD/JPY pair. The fundamental background, however, justifies some caution for bears and positioning for any further depreciation moves.
Japan’s new Prime Minister Shigeru Ishiba said last week that the country is not ready for more rate hikes. Added to this is that a Bank of Japan (BoJ) board member offered a similar view last Thursday and increased uncertainty about future rate hikes. This, in turn, could limit the JPY. The US dollar (USD), on the other hand, remains supported near a seven-week high reached in reaction to Friday’s upbeat US jobs report, which forced investors to further reduce expectations for another large rate cut by the Federal Reserve (Fed). This could lend further support to the USD/JPY pair.
Traders might also prefer to stay on the sidelines ahead of the release of this week’s FOMC meeting minutes on Wednesday. In addition to this, US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Thursday and Friday, respectively – will be watched for clues about the path of cuts. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide fresh impetus to the USD/JPY pair. Meanwhile, Fed statements will be watched for near-term opportunities in the absence of relevant data on Monday.
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.
