USD/JPY Continues to Climb to Nearly Three-Month High
- BoJ Rate-Hike Uncertainty Impacts JPY
- USD Supported by Bets for Smaller Fed Rate Cuts
The USD/JPY pair has been on an upward trend for the third consecutive day, reaching a high not seen in nearly three months. The Japanese Yen (JPY) has been underperforming, dropping below the 152.00 mark against the US Dollar (USD) due to uncertainties surrounding the Bank of Japan’s (BoJ) rate-hike decisions. With Japan’s snap election approaching, the ruling Liberal Democratic Party (LDP) faces challenges, casting doubt on the BoJ’s ability to raise interest rates this year.
On the other hand, the USD has been strengthening, supported by expectations of smaller rate cuts by the Federal Reserve (Fed). The FedWatch Tool indicates a high likelihood of a 25 basis point rate cut in November. Speculations of former President Trump’s re-election and potential inflation-generating tariffs could further influence Fed policies, favoring a less aggressive stance on rate cuts.
Market Analysis and Outlook
Impact on USD/JPY Pair
The recent surge in US Treasury bond yields, reaching a three-month high, has bolstered the USD’s position and signaled a negative outlook for the JPY. Despite geopolitical risks and a risk-off environment, the fundamental backdrop suggests that any pullback in the USD/JPY pair could present buying opportunities.
Technical Analysis
Technical indicators show a bullish trend for the USD/JPY pair, with the potential to reach the 153.00 mark and test resistance near 153.35. However, caution is advised as the Relative Strength Index (RSI) signals slightly overbought conditions. A pullback towards 152.00 could offer support, with further downside limited near the 151.00 mark.
Bank of Japan FAQs
Key Information about BoJ
The Bank of Japan (BoJ) is the central bank responsible for setting monetary policy in Japan, with a mandate to ensure price stability through an inflation target of around 2%.
BoJ’s Monetary Policy Evolution
Since 2013, the BoJ has implemented ultra-loose monetary policies, including Quantitative and Qualitative Easing (QQE) and negative interest rates. In 2024, the BoJ shifted towards normalizing its policies by lifting interest rates.
Impact on Yen and Inflation
The BoJ’s stimulus measures led to a weaker Yen and increased Japanese inflation, exceeding the 2% target. The policy divergence between the BoJ and other central banks influenced the Yen’s value against other currencies.
Conclusion
The current market dynamics favor the USD against the JPY, with potential for further upside in the USD/JPY pair. However, geopolitical risks and global economic factors could impact the currency pair’s trajectory. Investors should monitor key events and technical indicators to make informed decisions in the forex market.