USD/JPY corrects below 142.00 ahead of Fed verdict

Vaseline4 weeks ago

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USD/JPY corrects below 142.00 ahead of Fed verdict

USD/JPY slips below 142.00 as firm speculation for big Fed rate cuts weigh on US dollar.
Market participants expect the Fed to cut interest rates by 100 bps this year.
Investors expect the BoJ to hold interest rates steady at 0.25% on Friday.

USD/JPY drops below 142.00 in the European session on Wednesday. The asset faces selling pressure after a recovery move to near 142.47 as the US dollar (USD) eases ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT.

Market sentiment remains upbeat as the Fed is almost certain to start cutting interest rates. S&P 500 futures posted decent gains in European trading hours. The US Dollar Index (DXY), which tracks the greenback against six major currencies, is down near 100.70 from Tuesday’s pullback at 101.00. However, 10-year US Treasury yields are rising above 3.67%.

As the Fed prepares to cut interest rates, investors will be paying close attention to the potential size of the rate cut and the dot chart, which shows where policymakers see the Federal Funds rates heading in the short and long term.

According to the CME FedWatch tool, the likelihood that the Fed will cut interest rates by 50 basis points (bps) to 4.75%-5.00% rose to 63% from 14% a week ago. For the end of the year, traders expect the Fed to cut interest rates by 100 bps. This suggests the Fed will cut interest rates by 50 bps at one of its three remaining meetings this year.

In Asia, the Japanese Yen (JPY) will be influenced by the Bank of Japan’s (BoJ) monetary policy decision on Friday. The BoJ is widely expected to leave interest rates unchanged at 0.25%, with an unwavering stance due to steady economic growth and inflation stability above 2% for the 21st consecutive month.

Last week, BoJ policymaker Naoki Tamura forecast interest rates to rise by at least 1% as early as the second half of the next fiscal year.

Meanwhile, Japan’s economic assessment report for September, released on Wednesday, showed the economy recovering moderately, although still stalling in some parts, Reuters reported.

Frequently Asked Questions about the Japanese Yen

The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is largely determined by the performance of the Japanese economy, but more specifically by Bank of Japan policy, the difference between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the yen. The BoJ has intervened directly in currency markets on occasion, generally to depress the yen, although it refrains from doing so because of the political concerns of its main trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the yen to depreciate against its major peers. This process has been exacerbated more recently by a widening policy divergence between the Bank of Japan and other major central banks, which have opted to raise interest rates sharply to fight decades-high levels of inflation.

The BoJ’s stance of sticking to ultra-loose monetary policy has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This supports a widening of the spread between US and Japanese 10-year bonds, which favors the US dollar against the Japanese yen.

The Japanese yen is often seen as a safe investment. This means that during periods of market stress, investors are more likely to put their money into the Japanese currency due to its supposed reliability and stability. Troubled times are likely to strengthen the value of the yen against other currencies considered riskier to invest in.

Vaseline4 weeks ago

0 2 minutes read

Frequently Asked Questions about the Japanese Yen

Vaseline

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