Watching BOJ and USDJPY Closely As It Approaches May’s High
USD/JPY maintains its upward bias, with bullish momentum strengthening recently following a 2-cent gain in the last two days of last week, bringing it closer to the 160 mark. On Friday, the National Core CPI in Japan showed a 3-point spike in May, but it still came below estimates of 2.6%, while the US manufacturing and services PMI showed a respectable improvement, further accelerating the upward trend.
Fundamentals continue to underpin the USD against the yen. The Federal Reserve maintains a hawkish stance, signaling that interest rates will remain higher for an extended period, dismissing predictions of an early rate decrease. This contrasts sharply with the Bank of Japan’s ongoing loose monetary policy, aimed at supporting Japan’s faltering economy. As the Fed prioritizes keeping interest rates “higher for longer”, the BoJ focuses on stimulating economic activity through low-interest rates and other accommodative measures. This divergence in monetary policies between the two central banks continues to drive the USD’s strength against the yen, reinforcing the upward momentum in USD/JPY .
USD/CHF Chart Daily – MAs Keep Pushing the Lows Higher
The USD/JPY dropped by about 8 cents following the Bank of Japan’s intervention in late April. However, the 50-day Simple Moving Average (SMA) in yellow provided robust support in late May and early June, helping to drive the price back up. Last week, USD/JPY rose to over 159.00, fueled by stronger-than-expected S&P Global manufacturing and services index flash data. This level is quite close to the 2024 peak price of 160.208, which is the highest level seen since 1991 when the price peaked at 160.40.
Last night we had the Bank of Japan’s (BOJ) June summary reveals a range of views among its members regarding monetary policy and economic conditions.
Bank of Japan’s (BOJ) June Summary of Opinions
- One member indicated that the BOJ should consider raising interest rates if underlying inflation rises as projected.
- Given the potential for upside risks to inflation, another member suggested that the BOJ must contemplate further adjustments to the degree of monetary easing.
- Another viewpoint stressed the necessity of raising interest rates promptly, without delay, if the probability of achieving the price target increases.
- Conversely, one member proposed waiting to adjust interest rates until there is clear evidence of a sustained uptrend in inflation and inflation expectations, confirmed by data.
- Another member deemed it appropriate to maintain an easy policy for the time being, citing weak consumption and disruptions in auto shipments.
- The potential for a weak yen to lead to an inflation overshoot, thereby necessitating a higher policy rate, was highlighted by one member.
- The impact of foreign exchange (FX) volatility on a wide range of economic activities and the harm caused by FX levels that deviate from fundamentals were also noted.
- However, one member emphasized that monetary policy should not be influenced by short-term FX volatility.
- On bond buying, there was a call to reduce the BOJ’s bond purchases significantly and in a predictable manner to diminish its presence in the bond market.
- Another member suggested normalizing the BOJ’s balance sheet in an appropriate and timely fashion while maintaining close dialogue with market participants.
- One member advocated for a cautious and gradual approach to bond tapering.
- There was consensus that there is no change to the BOJ’s baseline economic scenario, with price data remaining on track.
- Concerns about weak consumption and its potential uplift from wage hikes and government measures were also discussed.
- The risk of inflation overshooting and its negative impact on consumer sentiment was acknowledged.
- It was noted that underlying inflation has yet to reach the 2% target.
- Lastly, one member observed that Japan is making steady progress toward achieving the price target, particularly when considering corporate wholesale and service price data.
USD/JPY Live Chart
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