Meanwhile, the FED and Bank of Japan are among six central banks that have announced a joint move to boost US dollar liquidity, as investors remain jittery about the banking system in the aftermath of the collapse of Silicon Valley and Signature banks. Even First Republic Bank, which received a $30 billion injection from major US banks saw its shares fall by 15% yesterday, following an 80% drop earlier in the month.

Given the bank crisis has primarily affected failing banks in the US and Switzerland, investors are now more hesitant to buy US dollars or Swiss francs, leaving the Japanese yen as the safe-haven currency of choice. As a result, the yen has enjoyed significant gains in the market mayhem, climbing by 2.5% last week. Yesterday, USD/JPY touched a low of 130.54, marking its lowest level since February 10.

Amidst this financial crisis, the Federal Reserve is scheduled to meet on Wednesday. While the FED will need to proceed with caution, the markets are still anticipating a 25 basis point hike on Wednesday, with some speculating that there may be a pause. The Fed’s goal is to keep raising rates to contain inflation, as demonstrated by Fed Chair Powell’s hawkish testimony earlier in March that convinced the markets to price in a 50-basis point move. However, given the financial markets’ recent turmoil, investors are once again discussing rate cuts later in the year, with a terminal rate forecast of 4.25% compared to the current level of 4.50%.

USD/JPY Live Chart