The USD/JPY pair has been trading near 145.35 for four consecutive days in the Asian session on Wednesday. The weakening US Dollar (USD) and anticipation of a dovish message from Federal Reserve (Fed) Chair Jerome Powell at Jackson Hole are pushing the pair lower.
Investors are confident that the Fed will cut interest rates this year, with expectations of three quarter-point cuts in September, November, and December. This sentiment is putting pressure on the Greenback, with the possibility of a half-point rate cut in September not being ruled out if there are signs of a further slowdown in hiring.
Minneapolis Fed President Neel Kashkari expressed openness to cutting rates in September due to concerns about a weakening labor market. On the other hand, Fed Governor Michelle Bowman remains cautious, citing upside risks for inflation and warning against overreacting to single data points.
The upcoming release of the US S&P Global PMI for August will be closely watched, with a better-than-expected outcome potentially limiting the USD’s downside. Additionally, Fed Chair Powell’s speech at the Jackson Hole symposium on Friday will be a key event to monitor.
On the JPY front, upbeat Japanese Q2 GDP growth could prompt the Bank of Japan (BoJ) to hike rates further this year, strengthening the Japanese Yen (JPY). Traders will also keep an eye on Japan’s National Consumer Price Index (CPI) for July, scheduled for release on Friday.
Fed FAQs
Monetary policy in the US is influenced by the Federal Reserve (Fed), which aims to achieve price stability and full employment by adjusting interest rates. When inflation is high, the Fed raises rates to strengthen the USD, while low inflation or high unemployment may lead to rate cuts, weighing on the Greenback.
The Fed holds eight policy meetings a year, where the FOMC assesses economic conditions and makes monetary decisions. In extreme situations, the Fed may resort to Quantitative Easing (QE) to increase credit flow, weakening the USD. Conversely, Quantitative Tightening (QT) involves reducing bond purchases, which is positive for the USD’s value.
Overall, the USD/JPY pair is being influenced by expectations of Fed rate cuts, economic data releases, and central bank policies. Traders should stay informed and watch key events to make informed investment decisions.