The USD/JPY currency pair ended a two-day losing streak, trading around 142.90 during European hours on Thursday. The Japanese Yen (JPY) remains under pressure following recent comments from Bank of Japan (BoJ) board member Naoki Tamura.
Tamura indicated that the BoJ has “no preset idea on the pace of further rate hikes,” suggesting that Japan’s rate hikes are likely to be more gradual compared to those in the US and Europe. The timeline for short-term rates in Japan to reach 1% will be contingent upon prevailing economic and price conditions.
The rebound in the USD/JPY pair is partly due to growing expectations that the Federal Reserve (Fed) will implement a smaller rate cut in its September meeting. August’s US Consumer Price Index (CPI) data revealed a drop in headline inflation to a three-year low, reinforcing the belief that the Fed may commence its easing cycle with a 25 basis points rate cut.
The US CPI decreased to 2.5% year-on-year in August, down from the previous 2.9% reading and falling short of the anticipated 2.6%. On a monthly basis, the headline CPI rose by 0.2%. Core CPI, excluding food and energy, remained steady at 3.2% year-on-year, with a slight increase to 0.3% month-on-month from the previous 0.2%.
According to the CME FedWatch Tool, markets are now fully anticipating a 25 basis points rate cut by the Federal Reserve in its September meeting. The probability of a more substantial 50 basis points cut has significantly diminished to 15%, down from 44% a week earlier.
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