- USD/JPY weakens to 156.00 as BoJ rate hike bets mount.
- The BoJ is expected to raise interest rates by a further 10 basis points as inflation remains above 2%.
- Investors are awaiting US data for further guidance on interest rates.
The USD/JPY pair is slumping near 156.00 in the American session on Tuesday. The asset is weakening as the Japanese Yen (JPY) is strengthening on expectations that the Bank of Japan (BoJ) will further tighten its monetary policy at its July policy meeting.
Economists expect the BoJ to raise interest rates by an additional 10 basis points (bps). Expectations that the BoJ will further increase borrowing rates are driven by inflation continuing above the bank’s 2% target. In June, the annual national Consumer Price Index (CPI) rose steadily by 2.8%.
The core CPI, which excludes the volatile food and energy items, accelerated to 2.2% from the previous release of 2.1%. The national CPI, excluding fresh food, grew more slowly to 2.6% from estimates of 2.7%, but remained above the previous release of 2.5%.
BoJ policymakers remain concerned about rising inflation due to the weak Japanese Yen. The weaker yen has resulted in higher exports, making them more competitive in global markets.
Meanwhile, the US Dollar (USD)’s safe-haven appeal is improving as risk aversion rises. The Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is up near 104.50.
This week, investors will focus on US second-quarter Gross Domestic Product (GDP) data and the Personal Consumption Expenditure (PCE) Price Index for June. The economic data will provide clues as to when the Federal Reserve (Fed) will begin to cut interest rates.
(The story was corrected at 13:20 GMT to say in the first bullet point that “USD/JPY weakens to 156.00 as bets mount for BoJ rate hike” and not a rate cut.)
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the spread between Japanese and US bond yields, and risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key to the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to political concerns of its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the BoJ and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.
The Bank of Japan’s stance of maintaining an ultra-loose monetary policy has led to an increase in policy divergence with other central banks, in particular with the US Federal Reserve. This favours the widening of the spread between US and Japanese 10-year bonds, which favours the Dollar against the Yen.
The Japanese Yen is often considered a safe haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its perceived reliability and stability. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
