The USD/JPY pair has experienced a second consecutive day of losses, trading around 141.20 during Wednesday’s Asian session. The Japanese Yen (JPY) has shown resilience following comments from Bank of Japan (BoJ) board member Junko Nagakawa.
Nagakawa indicated that the BoJ might adjust its monetary easing if economic conditions and inflation align with its forecasts. Despite the July rate hike, real interest rates remain deeply negative, and monetary policy continues to be accommodative. Should long-term rates increase significantly, the BoJ may reconsider its tapering strategy during upcoming policy meetings.
The decline in the USD/JPY pair is also influenced by the divergent monetary policies of the BoJ and the US Federal Reserve, which is driving the unwinding of carry trades and increasing demand for the Yen. BoJ Governor Kazuo Ueda has reaffirmed the central bank‘s commitment to further interest rate hikes, contingent on meeting economic projections through FY2025.
Meanwhile, the US Dollar (USD) remains subdued as Treasury yields continue to fall ahead of the release of the US Consumer Price Index (CPI) later in North American trading hours. This inflation report is expected to provide new insights into the potential scale of the Federal Reserve’s interest rate cut in September. Recent US labor market data has also cast uncertainty on the prospect of a more aggressive Fed rate cut.
According to the CME FedWatch Tool, markets are fully expecting at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The probability of a 50 bps rate cut has decreased slightly to 31.0%, down from 38.0% a week earlier.
Related Topics:
