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USD/JPY jumps above 143.50, focus shifts to BoJ rate decision

  • USD/JPY edges higher to 143.55 in Thursday’s Asian session, up 0.90% on the day. 
  • The Fed lowered interest rates for the first time in more than four years with a bigger-than-usual reduction. 
  • The BoJ is anticipated to stand pat at its policy meeting on Friday. 

The USD/JPY pair gains traction around 143.55 on Thursday during the early Asian session. The uptick of the major pair is bolstered by the recovery of the US Dollar (USD). Investors will shift their attention to the Bank of Japan (BoJ) interest rate decision on Friday. 

The Federal Reserve (Fed) cut its interest rates by 50 basis points (bps) to 4.75%- 5.00% at the September meeting on Wednesday. Fed Chairman Jerome Powell stated during the press conference that the move was "strong" but needed as price rises ease and job market concerns grow.

Fed policymakers lowered their GDP growth forecast for 2024 to 2%, down from the previous projection of 2.1%. Fed officials raised their projection for the long-run federal funds rate to 2.9% from 2.8%. The Greenback swung between gains and losses after the Fed decision. 

Meanwhile, the USD Index (DXY), a measure of the USD's value relative to the majority of its most significant trading partners, bounces off multi-month lows and reclaims the 101.00 barrier, gaining 0.20% on the day. However, the dovish stance of the US Fed and the expectation of additional rate cuts this year could weigh on the USD and limit the upside for the pair. 

On the other hand, the BoJ is widely expected to keep interest rates on hold at its two-day meeting ending Friday. Nonetheless,  a majority of economists polled by Reuters expect an increase by year-end. Since the Fed started its easing monetary policy in the September meeting, a narrowing gap between the US and Japanese interest rates might lift the Japanese Yen (JPY) against the USD. 

(This story was corrected on September 19 at 09:25 GMT to say, in the first paragraph, that USD/JPY gains traction during the early Asian session, not the European session.)

Bank of Japan FAQs

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.

The Bank’s massive stimulus 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 policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.

A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.



 

 

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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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