USD/JPY trades firmly around 148.70 ahead of Japan’s elections
- USD/JPY jumps to near 148.70 as the US Dollar trades firmly.
- US President Trump confirmed that he will not fire Fed’s Powell.
- Economists expect Japan’s ruling party to fail to gain majority in general elections.
The USD/JPY pair gains over 0.5% to near 148.70 on Thursday. The pair trades firmly as the US Dollar (USD) demonstrates strength, following United States (US) President Donald Trump refuted to reports stating the dismissal of Federal Reserve (Fed) Chair Jerome Powell soon.
A report from Reuters showed that US President Trump has received positive response from Republican lawmakers about firing Jerome Powell. However, Trump denied reports but kept criticizing Powell for not lowering interest rates.
During the European session, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trade close to a fresh three-week high slightly below 99.00.
Meanwhile, comments from Fed officials pointing to de-anchoring consumer inflation expectations due to sectoral tariffs imposed by Washington have also supported the US Dollar. On Wednesday, New York Fed Bank President John Williams said in a speech at New York Association for Business Economics that the impact of tariffs on inflation has “just started building up” as additional levies on nations are yet to be fed into the economy.
His comments were backed by the US Consumer Price Index (CPI) report for June, which showed that prices of goods largely imported by the US rose sharply.
In Japan, investors doubt the political stability as recent polls indicate that Japan’s ruling coalition – the Liberal Democratic Party (LDP) and Komeito – might lose its majority in the Upper House election on July 20, Reuters reported. Such a scenario will be unfavorable for the Japanese Yen (JPY) at a time when Washington has signaled that a trade deal with Japan is unlikely in the near term.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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