During early Asian trading on Monday, the USD/JPY pair surged near 157.50, bolstered by contrasting monetary policy stances from the US Federal Reserve (Fed) and the Bank of Japan (BoJ).
The Fed, as anticipated by market consensus, maintained its interest rates within the 5.25% to 5.5% range at its recent policy meeting. In a pivotal shift, the Fed revised its projections for rate cuts, now forecasting just one cut in 2024. Fed Chair Jerome Powell emphasized during a press conference that further evidence of inflation reaching the 2% target is needed before considering rate reductions. Minneapolis Fed President Neel Kashkari echoed this sentiment, suggesting a likely delay in rate cuts until December to gather more economic data.
Conversely, the BoJ opted to hold its benchmark interest rate steady at 0% to 0.1% following its June policy meeting. However, the central bank hinted at potential reductions in its purchases of Japanese government bonds after its next meeting in July. BoJ Governor Kazuo Ueda underscored the possibility of rate hikes in response to heightened import costs due to a weaker Japanese Yen (JPY). Takayuki Miyajima, senior economist at Sony Financial Group, interpreted the BoJ’s cautious approach to bond purchases as indicative of reluctance towards raising rates, underscoring a dovish outlook that continues to weigh on the JPY.
Despite the US Consumer Sentiment Index falling to a seven-month low of 65.6 in June, below expectations of 72.0, the impact on the USD was minimal. This divergence in economic data and monetary policy between the US and Japan further supported the USD/JPY pair’s upward momentum during the Asian session.
The ongoing divergence in monetary policy stances underscores the strengthening of the USD against the JPY, driven by expectations of prolonged Fed interest rate stability juxtaposed against the BoJ’s cautious approach.
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