In Tuesday’s European session, the USD/JPY pair staged a recovery to 147.50 following a two-day consolidation, fueled by a weakened Japanese Yen. The resurgence came in the wake of the Bank of Japan‘s (BoJ) expressed reservations about Japan’s economic outlook.
BoJ’s Ueda, in the Asian session on Tuesday, highlighted the economy’s recovery on limited economic fronts, citing persistent weakness in consumption. Additionally, Finance Minister Shunichi Suzuki, in a separate statement, indicated that Japan had not reached a point where it could declare victory over deflation. These remarks have tempered market expectations for the BoJ’s departure from its negative rates policy.
Anticipation for the BoJ’s shift away from an expansionary policy stance was considerably higher prior to Ueda’s comments. This optimism was based on the revised estimate for Japan’s Q4 Gross Domestic Product (GDP), revealing that the economy avoided a technical recession in the latter half of 2023. Contrary to preliminary estimates suggesting a 0.1% contraction, the revised figures show a 0.1% growth.
Furthermore, some BoJ policymakers expressed confidence in a positive wage cycle, potentially sustaining inflation above the targeted rate of 2%.
As investors monitor these developments, market sentiment remains optimistic leading up to the release of the United States Consumer Price Index (CPI) data for February at 12:30 GMT. This inflation data is poised to offer fresh insights into US interest rates. Federal Reserve (Fed) policymakers, aiming for evidence of sustained easing in inflation for months, remain cautious before considering a dovish interest rate decision.
