Japanese yen remains stable as the Bank of Japan maintains its interest rate at 0.15% during Friday’s meeting.
The Japanese yen (JPY) remains strong versus the US dollar (USD) following the Bank of Japan’s (BoJ) policy announcement on Friday to keep interest rates at 0.15%, as widely predicted.
Japan’s Consumer Price Index increased by 3.0% year on year in August, reaching its highest level since October 2023.
Japan’s Consumer Price Index (CPI) rose to 3.0% year on year in August, up from 2.8% earlier, marking the highest level since October 2023. Furthermore, the Core National CPI, excluding fresh food, achieved a six-month 2.8% increase for the fourth consecutive month, in line with market expectations.
The Japanese yen(USDJPY) pair’s downside supported by a weaker US Dollar (USD), as the US Federal Reserve (Fed) expected to cut interest rates further by the end of 2024. The most recent dot plot estimates show a steady softening cycle, with the 2024 median rate reduced to 4.375%, down from the 5.125% anticipated in June.
However, Federal Reserve Chair Jerome Powell stressed in the post-meeting press conference that the Fed is not in a hurry to loosen policy and emphasized that half-point rate decreases are not the “new pace.”
Daily Market Movers: The Japanese Yen gains strength from the hawkish BoJ policy stance.
Japan’s Finance Minister, Shunichi Suzuki said Friday that he “will continue to monitor and analyze the impact of the latest US rate cut on the Japanese economy and financial markets.” Suzuki said that the Federal Reserve Bank’s (FRB) view of the US economy is consistent with the Japanese government’s opinion that the US economy is expected to expand.
US Treasury Secretary Janet Yellen said on Friday that the Federal Reserve’s recent interest rate drop is a very encouraging sign for the US economy. According to Yellen, it indicates the Fed’s confidence that inflation has meaningfully dropped and is on track to meet its 2% target. Meanwhile, the labor market remains strong.
The Federal Open Market Committee (FOMC) reduced the federal funds rate to a range of 4.75 percent. The Fed dropped interest rates to 5.0% for the first time in over four years. Fed members upgraded their quarterly economic predictions, raising the median expectation for unemployment to 4.4% by the end of 2024, up from 4.0% in June. They also increased their long-term prediction of the federal funds rate from 2.8% to 2.9%.
Federal Reserve Chair Jerome Powell responded to the aggressive 50 basis point rate cut, saying, “This decision reflects our increased confidence that, with the right adjustments to our policy approach, we can maintain a strong labor market, achieve moderate economic growth, and bring inflation down to a sustainable 2% level.”
Japan’s trade imbalance increased to ¥695.30 billion from ¥628.70 billion the previous month.
In August, Japan’s trade imbalance increased to ¥695.30 billion from ¥628.70 billion the previous month. The prior month’s shortfall was ¥1,380.0 billion, which was significantly lower than market projections. Exports rose 5.6% year on year, marking the ninth consecutive month of growth, but fell short of the expected 10.0%. Imports increased by only 2.3%, the smallest rate in five months and substantially lower than the predicted 13.4% increase.
Shunichi Suzuki, the Japanese finance minister, stated on Tuesday that fast foreign exchange (FX) movements are undesirable. Suzuki highlighted that officials will closely monitor how foreign exchange movements affect the Japanese economy and people’s livelihoods. According to Reuters, the administration will continue to monitor and respond to the impact of a rising Japanese yen.
Commerzbank FX analyst Volkmar Baur predicted that the Bank of Japan would remain on the sidelines this week. Baur observed that the Federal Reserve’s actions are anticipated to have a stronger influence on the USD/JPY pair, implying that the JPY may go below 140.00 per USD even in the absence of a rate hike from the Bank of Japan.
