USD/JPY fails to rally beyond 153.00, remains steady above 152.40
- The Dollar consolidates gains above 152.40 against the Yen, on track for its best weekly performance this year.
- A Takaichi aide said on Thursday that the BoJ needs to be "careful about rising rates".
- The Focus today is on the speeches from Fed Chairman Powell and Vice Chair for Supervision, Michelle Bowman.
The US Dollar is trimming some gains against the Japanese Yen on Thursday, after failing to find acceptance beyond 153.00 at the European session opening. The pair, however, remains consolidating near nine-month highs, with downside attempts contained above 152.40 for now.
Investors remain concerned that the unexpected victory of Sanae Takaichi in the ruling LDP elections this weekend will open a period of a looser fiscal policy and pressure on the Bank of Japan to keep an expansive monetary policy.
Pressures on the BoJ to keep interest rates at low levels
Those fears were confirmed on Thursday after Etsuro Honda, an economic adviser to the new LDP leader and highly likely next PM Takaichi, affirmed that the Bank of Japan should “be careful about raising interest rates”.
Honda affirmed that the timing for the next rate hike remains unclear and stated that a weak Yen is positive for economic recovery, adding pressure on the BoJ to delay further monetary tightening plans.
In the US, the minutes of the September Fed meeting have failed to alter the view that the bank will cut interest rates again in October and, highly likely, also in December.
In the absence of key fundamental US releases to contrast those views, amid the US Government shutdown, traders will be looking at the speeches of Fed Chairman, Jerome Powell and the Vice Chair for Supervision, Michelle Bowman, due later today.
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 embarked in an ultra-loose monetary policy in 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. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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