Japanese yen continues on the back foot amid a favorable risk tone downside appears limited.
The Japanese Yen (JPY) struggles to benefit on a minor Asian session advance, falling for the second day in a row against the US dollar on Wednesday. The optimism around a delay in the implementation of Trump’s reciprocal tariffs and discussions aimed at ending the Russia-Ukraine war continues to maintain a positive tone in the equities markets. This, in turn, is seen as a significant factor weakening the safe-haven JPY, which, together with a slight US Dollar (USD) increase, helps the USDJPY pair recover roughly 40 pips from the daily low.
The differing expectations of the BoJ and the Fed should help to contain USDJPY gains.
Any real JPY devaluation, however, appears difficult in the face of mounting wagers that the Bank of Japan (BoJ) will raise interest rates further despite signs of expanding inflation. Meanwhile, hawkish BoJ forecasts have resulted in a recent large increase in Japanese bond yields. The resulting reduction of the rate disparity between Japan and other countries bodes well for the appearance of some JPY dip-buying. This, in turn, calls for caution before putting aggressive bullish wagers on the USDJPY pair ahead of the FOMC minutes later today.
Daily Market Update:Japanese yen bulls have the upper hand amid the hawkish BoJ.
Bank of Japan Governor Kazuo Ueda and Deputy Governor Himino have indicated the possibility of another rate hike if the economy and prices align with projections. BoJ Board Member Hajime Takata stated on Wednesday that the central bank must gradually shift policy to avoid upside price risks. Additionally, Japan’s positive Q4 GDP print on Monday has boosted bets for further policy tightening by the BoJ Since 2010 earlier this week, which should continue to support the Japanese yen.
Officials from the United States and Russia met in Saudi Arabia to explore ways to end the nearly three-year-old war in Ukraine, and they decided to have additional talks.
Furthermore, a delay in the implementation of US President Donald Trump’s reciprocal tariffs maintains a favorable risk tone while undermining the safe-haven yen.
Market players are now looking forward to the release of minutes from the Federal Reserve’s most recent policy meeting in January for new clues about the future path of interest rate cuts.
