USD/JPY refreshes three-week high near 151.00 despite correction in US Dollar

Source Fxstreet
  • USD/JPY jumps to near 151.00 as the Japanese Yen declines significantly.
  • The US Dollar slumps after US President Trump announces 25% auto tariffs.
  • Fed policymakers support keeping interest rates at their current levels until they get clarity over Trump’s policies.

The USD/JPY pair posts a fresh three-week high near 151.00 during North American trading hours on Thursday. The pair strengthens amid significant weakness in the Japanese Yen (JPY). The Yen underperforms even though traders remain confident that the Bank of Japan (BoJ) will raise interest rates again this year.

Japanese Yen PRICE Today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Canadian Dollar.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   -0.29% -0.38% 0.27% 0.31% -0.07% -0.22% -0.03%
EUR 0.29%   -0.11% 0.54% 0.58% 0.18% 0.05% 0.24%
GBP 0.38% 0.11%   0.64% 0.69% 0.30% 0.14% 0.36%
JPY -0.27% -0.54% -0.64%   0.02% -0.37% -0.52% -0.30%
CAD -0.31% -0.58% -0.69% -0.02%   -0.38% -0.53% -0.33%
AUD 0.07% -0.18% -0.30% 0.37% 0.38%   -0.14% 0.06%
NZD 0.22% -0.05% -0.14% 0.52% 0.53% 0.14%   0.21%
CHF 0.03% -0.24% -0.36% 0.30% 0.33% -0.06% -0.21%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

BoJ hawkish bets have been driven by expectations of more wage hikes ahead. Last week, Japan's largest trade union group, Rengo, showed that firms agreed to raise pay growth by 5.4% this year.

Though investors have underpinned the US Dollar (USD) against the Japanese Yen, it is underperforming against other peers after the imposition of 25% tariffs on autos entering the United States (US) from President Donald Trump, which will become effective from April 2.

Market participants expect that Trump's tariffs will be unfavorable for the global economy, including the US. It will be US importers who will bear the burden of higher tariffs and will pass on to consumers. Such a scenario will be inflationary for the US economy, which will diminish the purchasing power of households.

Fears of a resurgence in inflationary pressures and a slowdown in the US economic growth have led Federal Reserve (Fed) officials to stay on the sidelines. On Wednesday, Minneapolis Fed Bank President Neel Kashkari said at the Detroit Lakes Chamber Economic Summit that the central bank should "just sit where we are for an extended period of time until we get clarity."

According to the CME FedWatch tool, the Fed is almost certain to keep interest rates in the current range of 4.25%-4.50% in the May policy meeting but see a 66% chance of a reduction in June.

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.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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