The gains of the Japanese yen quickly evaporated after the comments of the Governor of the Bank of Japan before the start of trading. The USD/JPY returned to its upward path, settling around the resistance level of 147.23 after falling to the support level of 145.90. It will have a strong reaction on the future policy of the American Federal Reserve Bank.
Next Wednesday, the US Federal Reserve Bank will take center stage. Officials there have become more optimistic about their ability to curb inflation without causing serious economic pain. Bond markets are giving almost no chance of raising US interest rates at the next meeting, and economists agree that interest rates will be steady after clear signals from Fed leaders that they plan to hold off on any hikes this month.
Amid signs indicating that price pressures and the labor market will gradually calm down, US Federal Reserve Bank officials do not want to dissipate the possibilities of a "soft landing" by raising interest rates too much. The moderate result would be a rare achievement, perhaps easing criticism that Federal Reserve Chairman Jerome Powell reacted too late to the rise in prices in the first place. The focus of the September 19-20 meeting will be on the updated economic outlook that is expected to show another hike by the end of the year, while keeping US interest rates near their peak throughout 2024 to ensure inflation returns to the central bank's 2% target.
Japanese Finance Minister Shunichi Suzuki said yesterday that he expects the Bank of Japan to implement monetary policy appropriately and work with the government to achieve the inflation target while taking into account "the economy, prices and financial conditions." And Suzuki, who was speaking at a regular news conference, declined to comment on comments made by Bank of Japan Governor Kazuo Ueda in a media interview over the weekend in which he hinted at a gradual move away from negative interest rates and overly accommodative monetary policy.
Suzuki added by saying: "The conduct of the specific monetary policy is up to the Bank of Japan to decide." And "I expect the Bank of Japan to continue to coordinate closely with the government and manage monetary policy appropriately, taking into account the economy, prices and financial conditions, to achieve the goal of stabilizing prices in a stable and sustainable manner."
Japanese long-term interest rates rose on Monday to their highest levels in nine years and eight months amid expectations that the Bank of Japan may move away from negative interest rate policy, following Ueda's comments in an interview with the Yomiuri Shimbun newspaper.
Expectations of the dollar against the Japanese yen today:
- The yen rose sharply against the dollar on Monday after Japan's central bank governor said the central bank may end negative interest rate policy when achieving its 2% inflation target is on the horizon, signaling the possibility of a rate hike.
- This confirms our expectations that the continuation of the discrepancy between the policy of the strict American Federal Reserve Bank and the Bank of Japan with its negative interest rate.
- This will remain an important factor for the continuation of the bulls' control over the direction of the USD/JPY currency pair. 150.00 strong wound.
On the other hand, if the US inflation numbers come in weaker, the currency pair may be exposed to sales to take profits and then it will quickly return to its broader upward path. There will be no real change of direction without Japanese intervention in the markets to prevent further collapse of the Japanese yen.
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