- USD/JPY rises to almost 145.00 as the US dollar recovers strongly.
- Positive US consumer confidence alleviates fears of a hard landing in the US.
- Investors are awaiting the Tokyo CPI and US core PCE inflation for July.
The USD/JPY pair is rising to near 145.00 in Wednesday’s North American session. The asset is gaining strength as the US dollar (USD) is showing a strong recovery move after hitting a new yearly low. The USD is recovering as upbeat US consumer confidence data for August eases fears of a hard landing.
Market experts expected a hard landing for the US economy after the US Nonfarm Payrolls (NFP) report for July showed a slowdown in labor demand and a significant increase in the unemployment rate. The hard landing is a scenario in which the economy falls into recession in an effort to bring inflation down to the bank’s target.
The US Conference Board showed on Tuesday that consumer confidence rose to 103.30 in August, beating expectations of 100.7. The sentiment indicator shows private individuals’ confidence in the economic outlook.
Meanwhile, market sentiment appears to be risk-off as investors turn cautious ahead of core US Personal Consumption Expenditure Price Index (PCE) data for July, due to be released on Friday. The S&P 500 posted nominal losses in the North American session. The US dollar index (DXY), which tracks the greenback’s value against six major currencies, recovered sharply above 101.00 from a new yearly low of 100.50.
Underlying inflation data is likely to influence market speculation about the Federal Reserve’s (Fed) interest rate cut path. Financial markets currently expect the Fed to start cutting interest rates starting at the September meeting. Traders remain divided over the likely magnitude of the rate cut.
As for the Japanese yen (JPY), investors are awaiting the Tokyo Consumer Price Index (CPI) data for August, which will be released on Friday. The data is expected to show that the Tokyo Consumer Price Index (CPI) excluding fresh food rose steadily by 2.2% in August. The inflation data will influence market speculation about the Bank of Japan’s (BoJ) interest rate hike path.
Frequently asked questions about the Japanese yen
The Japanese yen (JPY) is one of the most traded currencies in the world. Its value is largely determined by the performance of the Japanese economy, more specifically by the policies of the Bank of Japan, the difference between Japanese and US bond yields or the risk appetite of traders, among other factors.
One of the Bank of Japan’s responsibilities is currency control, so its actions are crucial for the yen. The BoJ has sometimes intervened directly in foreign exchange markets, generally to lower the value of the yen, although it often refrains from doing so due to political concerns among its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive economic stimulus, has led to a depreciation of the yen against its major counterpart currencies. This process has recently worsened due to a growing policy divergence between the Bank of Japan and other major central banks, which have opted to raise interest rates sharply to combat decades of high inflation.
The BoJ’s stance of maintaining its ultra-loose monetary policy has led to a growing divergence in its policies with other central banks, particularly the US Federal Reserve. This is leading to a widening of the spread between the US and Japanese 10-year bonds, favoring the US dollar against the Japanese yen.
The Japanese yen is often viewed as a safe haven asset. This means that during times of market stress, investors are more likely to put their money into the Japanese currency because it is seen as reliable and stable. Turbulent times are likely to strengthen the yen’s value against other currencies that are considered riskier.
:max_bytes(150000):strip_icc():focal(749x0:751x2)/christopher-reeve-04-family-e8dc74ce155e4444abfe0248e38815bc.jpg "Christopher Reeves’ children reveal the first words they said to him after the accident")
