- USD/JPY weakens around 153.90 in early Asian session on Tuesday.
- The Fed is likely to keep interest rates unchanged at its July meeting on Wednesday.
- The BoJ is expected to raise rates at its July 31 meeting, according to a Reuters poll of economists.
The USD/JPY pair is trading on a weaker note near 153.90 during the early Asian session on Tuesday. The pair is paring gains after retreating from 153.35 amid risk-off mood and growing speculation of a rate hike by the Bank of Japan (BoJ). The BoJ and Federal Reserve (Fed) interest rate decision on Wednesday will be in focus ahead of the US jobs data on Friday.
Markets do not expect the US Fed to cut interest rates at its July meeting this week, but expect Fed officials to set the stage for policy easing at their September meeting. Traders are now pricing in a 100% chance of a Fed rate cut of at least a quarter percentage point in September, according to data from the CME’s FedWatch tool. Mounting bets on a Fed rate cut continue to weigh on the Dollar versus the Japanese Yen (JPY) in the near term.
On the other hand, a Reuters poll of economists expects the Japanese central bank to hike rates by 10 basis points (bps) to 0.1%. ING noted that the BoJ could raise rates by 15 bps and reduce its bond-buying program simultaneously. FX strategists at OCBC said, “The combination of BoJ policy normalization and the potential Fed rate cut in due course is a case of monetary policy convergence and should support USD/JPY lower.”
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the spread between Japanese and US bond yields, and risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key to the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to political concerns of its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, 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 BoJ and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.
The Bank of Japan’s stance of maintaining an ultra-loose monetary policy has led to an increase in policy divergence with other central banks, in particular with the US Federal Reserve. This favours the widening of the spread between US and Japanese 10-year bonds, which favours the Dollar against the Yen.
The Japanese Yen is often considered a safe haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its perceived reliability and stability. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.
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.
