- USD/JPY has crossed 143.00 as odds of a bumper rate hike by the Fed have advanced.
- The ongoing price pressures have highly deviated from the desired inflation rate of 2%.
- An expectation of intervention in the Fx market by Japan seems unable to support the depreciating yen.
The USD/JPY pair has advanced sharply after a little shaky opening and is hovering around 143.00 in the Asian session. The asset is expected to advance further after slaughtering the immediate hurdle of 143.00 as the Federal Reserve (Fed) is preparing to scale up its interest rates further this year. On a broader note, the major has attempted a firm rebound after the conclusion of retracement from the previous week’s high around 145.00.
There is no denying the fact that the US economy has entered into a decline phase of US inflation as back-to-back declines in headline US Consumer Price Index (CPI) warrant exhaustion signals. Falling gasoline prices in the US and jaw-dropping interest rates have resulted in a decline in inflation forecasts. The plain-vanilla CPI that does inculcate food and energy prices is seen at 8.1%, lower than the prior release of 8.5%. A decline in the inflation rate is music to the ears but the Fed will continue its hawkish stance further.
The deviation between desired inflation rate, which is 2% and ongoing inflationary pressures is quite huge. Therefore, the Fed will continue its hawkish guidance and will observe the inflation rate for several months to shift its stance. In September’s monetary policy meeting, the Fed is expected to announce a third consecutive 75 basis points (bps) interest rate hike.
On the Tokyo front, investors are awaiting more build-up on news of Japan’s intervening in the Fx market to support yen. Japan's top currency diplomat Kanda said on Thursday that recent yen falls cannot be justified based on fundamentals, as reported by Reuters.
He further added that the Bank of Japan (BOJ) is expected to take necessary action to support the yen bulls. Also, Tokyo is communicating with other countries on recent Fx moves. The meeting was attended by officials from Japan’s Ministry of Finance, the Financial Institutions Agency, and the Bank of Japan (BOJ).
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