During European trading hours, the USD/JPY pair has extended gains for the second consecutive session, hovering around the 154.00 mark. The uptick in the US Dollar (USD), driven by an upward correction, offers support to the currency pair. However, investor sentiment remains cautious due to optimism following softer US labor data released on Friday, potentially hampering further USD appreciation. This sentiment resurgence has sparked speculation about potential interest rate cuts by the Federal Reserve (Fed) in 2024.
Richmond Federal Reserve (Fed) President Thomas Barkin, as reported by Bloomberg, highlighted on Monday that elevated interest rates could constrain economic growth in the United States (US). While higher interest rates aid in curbing inflationary pressures, aligning with the central bank‘s 2% target, Barkin stressed the importance of a robust labor market in confirming sustained inflation decline before considering adjustments to borrowing costs. However, he cautioned against persistent inflationary pressures in the housing and services sectors, posing risks of sustained elevated price levels.
The US Dollar Index (DXY), gauging USD performance against six major currencies, is trading higher around 105.20. Nevertheless, the advance of the US Dollar is restrained by weaker US Treasury yields. At present, 2-year and 10-year yields on US Treasury bonds stand at 4.80% and 4.45%, respectively.
In Japan, Masato Kanda, Japan’s top currency diplomat, hinted at potential measures to address excessive market fluctuations earlier on Tuesday. Last week, the Japanese Yen (JPY) witnessed appreciation amid speculation of government intervention. Reuters reported data from the Bank of Japan (BoJ) suggesting that Japanese authorities may have allocated around ¥6.0 trillion on April 29 and ¥3.66 trillion on May 1 to support the JPY.
Masakazu Tokura, Chairman of KEIDANREN (Japan Business Federation), stressed the importance of FX rates reflecting fundamentals in the medium to long term. While uncertainty surrounds whether authorities intervened, Tokura acknowledged that if they did, the timing was opportune.
