During early Asian trading hours on Thursday, the USD/JPY pair continued its upward trajectory, marking the fourth consecutive day of positive trading around 155.60. However, apprehensions regarding potential intervention by the Bank of Japan (BoJ) are expected to limit the Japanese Yen‘s (JPY) downside in the near term.
At its April monetary policy meeting, the BoJ board members opted to maintain the key interest rate at 0%. The Summary of Opinions from the BoJ underscored a hawkish sentiment among policymakers, advocating for a stable interest rate regime to mitigate the risks associated with inflation overshooting. Notably, BoJ Governor Kazuo Ueda’s recent remarks hinted at the likelihood of multiple rate hikes in the forthcoming months, alongside a probable uptick in short-term borrowing rates.
Early Wednesday, Masato Kanda, Japan’s top currency diplomat, hinted at potential intervention measures to curb the strength of the JPY, albeit refraining from elaborating on FX intervention specifics. Such actions from Japanese authorities could bolster the JPY and constrain the pair’s upside potential.
Conversely, the prevailing monetary policy divergence between the United States and Japan continues to underpin the USD/JPY pair. Furthermore, statements from Boston Fed President Susan Collins on Wednesday, suggesting a prolonged period of higher interest rates to combat inflation, buoyed the Greenback, thereby providing additional support to the pair.
Looking ahead, market participants will closely monitor the preliminary release of the University of Michigan Consumer Sentiment Index on Friday. Projections anticipate a decline to 76.0 in May from April’s 77.2, with potential implications for market sentiment and the pair’s trajectory.
