The USD/JPY pair kicks off the new week on a softer note and erodes a part of Friday’s gains to the 148.00 neighbourhood, or a fresh high since November 2022. The prevalent cautious market mood drives some haven flows towards the Japanese Yen (JPY), which, along with a mildly softer tone surrounding the US Dollar (USD), exerts some pressure on the major. Market players turn cautious in the wake of the latest developments surrounding China Evergrande Group. In fact, the embattled developer delayed a decision to restructure its debt, reviving fears about the worsening property crisis in the world’s second-largest economy. This comes on the back of China’s conservative approach to introducing more stimulus measures and tempers investors’ appetite for riskier assets.
The JPY draws additional support from speculations that the Bank of Japan (BoJ) could move away from ultra-loose policy. The expectations were fueled by BoJ Governor Kazuo Ueda’s hawkish remarks during an interview with Yomiuri newspaper, saying that ending negative interest rates is among the options available if the central bank becomes confident that prices and wages will keep going up sustainably. The USD, on the other hand, remains on the defensive below a six-month peak touched last week amid growing acceptance that the Federal Reserve (Fed) will keep interest rates steady at the September monetary policy meeting. This is seen as another factor that contributes to the USD/JPY pair’s downtick, though any meaningful corrective slide seems elusive.
A string of major central banks, including the Federal Reserve (Fed) and the BoJ, are scheduled to announce rate decisions later this week.
Investors will scrutinize Fed Chair Jerome Powell’s comments at the post-meeting press conference on Wednesday for cues about the future rate-hike path. This will be followed by the BoJ policy meeting on Friday, where investors will look for any forward guidance on when the Japanese central bank’s negative interest rate policy will be reversed.
This, in turn, will determine the next leg of a directional move for the USD/JPY pair. In the meantime, bets for one more 25 bps Fed rate hike move by the end of this year remain supportive of elevated US Treasury bond yields, which should act as a tailwind for the USD and lend support to the major.
