Japanese Yen gains against US Dollar at the start of Fed-BoJ policy week
- The Japanese Yen rises against the US Dollar amid renewed US-Iran diplomatic efforts.
- Both the US and Iran confirm pausing attacks on each other.
- The Fed and the BoJ are expected to leave interest rates unchanged this week.
The Japanese Yen starts the week on a positive note against the US Dollar (USD), but is down against its other currency peers. The USD/JPY pair is down 0.17% to near 163.57 as the US Dollar weakens due to improving investors’ risk appetite amid hopes of a resumption of United States (US)-Iran diplomatic efforts to end the war.
At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.25% lower to near 101.20. S&P500 futures trade almost 1% higher to near 7,485, reflecting a risk-on market mood.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.32% | -0.21% | -0.15% | -0.07% | -0.32% | -0.24% | -0.37% | |
| EUR | 0.32% | 0.07% | 0.15% | 0.23% | -0.01% | 0.09% | -0.06% | |
| GBP | 0.21% | -0.07% | 0.09% | 0.17% | -0.07% | -0.02% | -0.13% | |
| JPY | 0.15% | -0.15% | -0.09% | 0.05% | -0.17% | -0.10% | -0.21% | |
| CAD | 0.07% | -0.23% | -0.17% | -0.05% | -0.23% | -0.16% | -0.31% | |
| AUD | 0.32% | 0.00% | 0.07% | 0.17% | 0.23% | 0.10% | -0.08% | |
| NZD | 0.24% | -0.09% | 0.02% | 0.10% | 0.16% | -0.10% | -0.15% | |
| CHF | 0.37% | 0.06% | 0.13% | 0.21% | 0.31% | 0.08% | 0.15% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Over the weekend, Washington confirmed it was pausing attacks on Iran, stating that the list of Iranian targets has been exhausted, adding that there was little point in continuing the bombing campaign without a return to major combat operations. In response, Iran has also confirmed pausing attacks, but retains its “attack for attack’’ position.
This week, major triggers for the pair will be monetary policy announcements by the Federal Reserve (Fed) and Bank of Japan (BoJ) on Wednesday and Friday, respectively.
Financial markets expect both central banks to leave interest rates unchanged. The Fed is unlikely to provide any guidance regarding the monetary policy outlook, as Chairman Kevin Warsh said in its last press conference that “so-called forward guidance is not well-suited in the current policy juncture”.
Meanwhile, the BoJ is expected to reiterate that the monetary policy path will remain upward. According to the latest Reuters poll, 86% of economists expect the BoJ to raise its key interest rate to 1.25% by the end of the fourth quarter (Q4).
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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