The USD/JPY pair saw a notable rise, reaching around 157.30 during the early Asian trading session on Thursday, buoyed by expectations that US interest rates will remain elevated for an extended period. This outlook is strengthening the US Dollar (USD) against the Japanese Yen (JPY). With Japan’s markets closed for the rest of the week, attention is now turning to the upcoming US S&P Global Manufacturing PMI for December, due on Friday.
The US Dollar Index (DXY), which tracks the value of the USD against six major currencies, is currently hovering near 108.36. Traders are continuing to assess the Federal Reserve’s decision to implement a quarter-point rate hike in its December meeting, reflecting the central bank‘s hawkish stance. Analysts also anticipate that certain policy proposals, including tariffs, from a potential Trump administration could drive higher inflation. However, Fed Chair Jerome Powell has cautioned that it is still too early to predict the full impact, signaling a cautious approach to further interest rate cuts. The widening interest rate differential between the US and Japan continues to support the USD/JPY pair in the near term.
On the Japanese side, Bank of Japan (BOJ) Governor Kazuo Ueda stated last week that the central bank expects Japan’s economy to approach its 2% inflation target sustainably in 2024. The BOJ is set to release its quarterly report on regional economic conditions next week, which is expected to provide insight into whether wage increases are becoming more widespread across the country. This report may offer key clues about the BOJ’s policy stance ahead of its next meeting on January 24.
In addition, Japan’s Finance Minister Katsunobu Kato commented on Friday that officials are prepared to intervene in the foreign exchange market if excessive fluctuations in the JPY are observed, potentially limiting further losses for the Japanese currency.
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