- USD/JPY gains some positive traction on Monday, albeit struggles to capitalize on the move.
- The divergent BoJ-Fed policy expectations turn out to be a key factor capping further gains.
- A positive risk tone undermines the safe-haven JPY and could lend some support to the pair.
The USD/JPY pair struggles to capitalize on its modest Asian session uptick to the 148.00 mark and drops to a fresh daily low in the last hour. Spot prices currently trade just below mid-147.00s and seem vulnerable to prolong Friday’s retracement slide from a two-week top.
The prevalent risk-on mood, bolstered by signs of easing fears of a recession in the US, undermines the safe-haven Japanese Yen (JPY) and lends some support to the USD/JPY pair amid a modest US Dollar (USD) uptick. That said, rising geopolitical tensions in the Middle East keep a lid on the optimism in the markets. Furthermore, the divergent Bank of Japan (BoJ)-Federal Reserve (Fed) policy expectations keep a lid on any meaningful upside for the currency pair.
Investors seem convinced that Thursday's stronger second-quarter Gross Domestic Product (GDP) print released from Japan could encourage the Bank of Japan (BoJ) to continue raising interest rates. In contrast, the US central bank is all but certain to begin its policy-easing cycle in September. The bets were reaffirmed by San Francisco Fed President Mary Daly's remarks that the US central bank needs to take a gradual approach to lowering borrowing costs.
The aforementioned fundamental backdrop suggests that the path of least resistance for the USD/JPY pair is to the downside. Investors, however, might prefer to wait for more cues about the Fed's rate-cut path before positioning for the next leg of a directional move. Hence, the focus will remain on the release of the FOMC meeting minutes on Wednesday, which will be followed by Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD rises toward 1.1050 due to dovish Fedspeak
EUR/USD extends its gains for the second successive session, trading around 1.1030 during the early Monday. The upside of the pair could be attributed to the rising odds of an interest rate cut by the US Federal Reserve starting in September.
USD/JPY extends correction to 146.00 amid Fed-BoJ policy divergence
USD/JPY is extending declines to 146.00 in the European morning. The pair remains heavy, as divergent policy outlooks between the Fed and the BoJ come to the fore ahead of the Fed Minutes and Powell's speech due later this week.
Gold down but not out amid triangle breakout, dovish Fed bets
Gold price is battling $2,500 early Monday, having refreshed all-time highs at $2,510. Gold traders prefer to take profits off the table, repositioning before the key US Federal Reserve Minutes of the July meeting and Chairman Jerome Powell’s speech later this week.
Bitcoin price consolidates between $57,000 and $62,000 range
Bitcoin and Ethereum prices are likely to decline after failing to surpass their respective key resistance levels, whereas Ripple is showing stability around the daily support level of $0.544, indicating the potential for a recovery.
Jackson Hole, Fed minutes and PMI
S&P 500 consolidated sharp Thursday‘s gains called, with still bullish bias. Yet another intraday dip was bought, and we‘re heading to a tighter range week marked by manufacturing and services PMI with Jackson Hole.