- USD/JPY drops to near 146.00 as Yen strengthens after BoJ’s hawkish Summary of Opinions.
- After global market mayhem, BoJ Uchida preferred to keep the interest rates on hold until markets stabilized.
- The US Dollar will be influenced by the weekly US jobless claims data.
The USD/JPY falls to near 146.00 in Thursday’s European session. The asset weakens as the Japanese Yen (JPY) strengthens after the release of the Bank of Japan’s (BoJ) Summary of Opinions (SoP), which indicated that officials acknowledged the need of more rate hikes, in the July 30-31 meeting, to tame inflationary pressures, driven by higher import prices.
However, the impact of hawkish BoJ’s SOP is expected to be short-lived as the global risk-aversion mood could force officials to pause the policy-tightening spell. Sheer volatility in Japan’s equity markets due to BoJ’s withdrawal of accommodating policy stance has impacted BoJ’s rate-hike prospects.
On Wednesday, BoJ Deputy Governor Shinichi Uchida said, “We won’t raise rates when markets are unstable,” according to Reuters.
Meanwhile, the asset remains in a negative trajectory even though the US Dollar (USD) has recovered its intraday losses. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, hovers around 103.00.
The US Dollar is expected to remain under pressure on firm expectations that the Federal Reserve (Fed) will deliver fat rate cuts.
Going forward, investors will keenly on United States (US) Initial Jobless Claims due to an absence of top-tier economic data, which will be published at 12:30 GMT. Economists have estimated that individuals claiming jobless benefits for the first time were 240K, lower than the prior release of 249K, for the week ending August 2.
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.
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