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USD/JPY declines to near 146.00 on BoJ Ueda’s hawkish commentary on interest rates

  • USD/JPY drops sharply to near 146.00 as BoJ Ueda delivers hawkish interest rate guidance.
  • BoJ Ueda reiterated the need to raise interest rates further this year.
  • The Fed is now more focused on controlling downside risks to the US labor market.

The USD/JPY pair falls sharply to near 146.00 in Tuesday’s North American session. The asset faces selling pressure as the Japanese Yen (JPY) strengthens after Bank of Japan (BoJ) Governor Kazuo Ueda’s hawkish commentary on interest rates.

Kazuo Ueda reiterated in a document submitted to a government panel on Tuesday that the central bank won’t hesitate to raise interest rates further if the economy and inflation perform as expected, Reuters reported. Inflationary pressures in the Japanese economy continue to remain stubborn. Tokyo Consumer Price Index (CPI), excluding Fresh Food, released on Thursday, rose at a faster pace to 2.4% in August from estimates and July’s release of 2.2%.

USD/JPY remains on the backfoot despite further upside in the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises towards a two-week high of 102.00.

The US Dollar gains as investors turn cautious ahead of the United States (US) Nonfarm Payrolls (NFP) data for August, which will be published on Friday. Market participants will keenly focus on the official labor market data as the Federal Reserve (Fed) is now more focused on preventing labor demand, given that officials are confident about price pressures returning sustainably to the bank’s target of 2%.

In today’s session, investors will focus on the US ISM Manufacturing PMI data for August, which will be published at 14:00 GMT. Economists expect that activities in the manufacturing sector contracted at a slower pace, with the PMI coming in at 47.5 from July’s reading of 46.8.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supports a widening of the differential between the 10-year US and Japanese bonds, which favors the US Dollar against the Japanese Yen.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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