The Japanese Yen (JPY) maintained stability above 160.00 against the US Dollar (USD) on Tuesday, with traders adopting a cautious stance amid developments at the Bank of Japan (BoJ). The central bank is currently engaging in consultations with bond market participants to strategize the reduction or cessation of its long-standing bond-buying program, marking a potential shift from its extended loose monetary policy.
In contrast, the US Dollar Index (DXY) experienced minor setbacks following the French election outcome, which eased market uncertainties. Attention now turns to Capitol Hill, where US Federal Reserve Chairman Jerome Powell’s testimony on the semiannual Monetary Policy Report could provide insights into potential future interest rate adjustments, though no significant policy shifts are anticipated.
Key market movements include:
Japanese Energy Grid Monitoring: A heat wave in Japan has led regulators to closely monitor energy grid capacity, particularly in Tokyo, where industry minister Ken Saito addressed the situation in a briefing.
Equity Markets: Japanese equities surged nearly 1% across the Topix and Nikkei indices on Tuesday, contrasting with struggles in European markets and positive movements in US futures.
Fed Policy Expectations: The CME Fedwatch Tool indicates a 73.6% probability of a 25-basis-point interest rate cut in September, with a minority view supporting a rate pause or a more substantial 50-basis-point cut.
Rate Forecasts: In Japan, the Overnight Indexed Swap curve suggests a 60.1% chance of a rate hike by July 31, with a secondary likelihood of a hike by September 20.
Bond Rates: The US 10-year benchmark rate hovers around 4.29%, while the Japanese 10-year Treasury Note trades near 1.09%, nearing weekly highs.
Technical Analysis (USD/JPY):
The USD/JPY pair holds steady around 160.00, supported by the pivotal level at 160.32, which prompted a rebound on Monday. Resistance remains significant at 162.00, potentially signaling a return to multi-decade highs if breached. Conversely, a decline below 160.32 could target initial support at the 55-day Simple Moving Average (SMA) around 157.37.
As the BoJ continues its consultations and market dynamics evolve, the USD/JPY pair navigates a critical phase with implications for future monetary policy directions.
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