USD/JPY could trade higher on Powell’s cautious tone – ING

The Japanese yen (JPY) enters today’s risk event with decent momentum, having appreciated more than 2% over the past seven days, notes Francesco Pesole, FX strategist at ING.

Markets remain relatively hesitant about a move by the BoJ until the end of the year

“Overnight, Bank of Japan Governor Kazuo Ueda maintained a generally hawkish tone in a likely bid to demonstrate his independence from recent turmoil in the Japanese stock market.”

“Further rate hikes are on the table and the marginal CPI surprise (2.8% vs. 2.7% year-on-year) this morning also helps the variety case. Markets remain relatively hesitant about a move until the end of the year, however, with the price just 10bp up by December. We think the chance of a trip is – once again – underpriced.”

“USD/JPY could trade higher today on Powell’s cautious tone, but the path ahead remains bearish for the pair in our view, as carry pressure on the yen looks unlikely to build up again into a reduction of the Fed. “