The USD/JPY pair traded around 160.40 during the Asian session on Thursday, retreating from its peak of 160.87, the highest level since 1986. This correction can be attributed to verbal intervention by Japanese authorities, signaling potential measures to curb excessive foreign exchange moves.
Japanese Finance Minister Shunichi Suzuki emphasized on Wednesday the government’s readiness to take appropriate steps against extreme forex fluctuations. Although Suzuki did not specify particular exchange rate levels or potential interventions, he highlighted the necessity for currency movements to align with economic fundamentals. Chief Cabinet Secretary Yoshimasa Hayashi supported these sentiments, underscoring the government’s stance on maintaining stability in the currency market.
The US Dollar (USD) weakened as traders anticipated the upcoming Core PCE Price Index inflation data, expected to show a year-over-year decrease to 2.6% from the previous 2.8%. As the Federal Reserve’s (Fed) preferred inflation measure, this data is crucial for market expectations regarding potential rate cuts. Investors hope that signs of easing inflation might prompt the Fed to consider reducing interest rates sooner than previously anticipated.
Despite this, the downside pressure on the Greenback might be cushioned by the relatively high yields on US Treasury bonds. The 2-year and 10-year yields stood at 4.74% and 4.33%, respectively, at the time of reporting.
Fed officials have offered mixed signals about the future of interest rates. Fed Governor Michelle Bowman reiterated on Tuesday that maintaining the policy rate steady for a while could suffice to control inflation. Conversely, Fed Governor Lisa Cook suggested that rate cuts might be appropriate “at some point” due to significant progress on inflation and a gradual cooling of the labor market, though she did not specify a timeline for potential easing.
These dynamics highlight the intricate balance between Japanese intervention measures and US economic data in shaping the USD/JPY exchange rate, reflecting the broader uncertainties in global financial markets.
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