Japanese yen fall might restrict because the Bank of Japan widely expected to raise interest rates further.
The Japanese yen (JPY) fell against the US dollar (USD) on Tuesday. However, the JPY fall might be limited given the increased prospect of another near-term interest rate hike.
Recent economic growth in Japan boosts the prospect of another near-term BoJ rate hike.
Japan’s economy expanded at an annualized pace of 3.1% in the second quarter, well above expectations and recovering from a dip earlier in the year.
According to Reuters, the Bank of Japan (BoJ) estimated that A strong economic recovery would aid in the long-term achievement of the 2% inflation target. This would support more interest rate rises, after last month’s move as part of the Bank of Japan’s continued drive to unwind years of substantial monetary stimulus. On Friday, BoJ Governor Kazuo Ueda will discuss the central bank’s decision to hike interest rates last month.
US dollar strengthens as Treasury yields struggle to recoup recent losses.
The US Dollar (USD) is retracing its recent losses due to risk aversion sentiment. However, the Greenback encountered hurdles when comments from Federal Reserve (Fed) officials raised the potential of future rate cuts. According to Reuters, Minneapolis Fed President Neel Kashkari stated on Monday that it would be reasonable to examine prospective US interest rate reduction in September due to concerns about a worsening labor market.
Daily Market Movers: The Japanese yen depreciates despite a hawkish BoJ.
According to the Financial Times, President Mary Daly of the Federal Reserve Bank of San Francisco reiterated on Sunday that the US central bank should reduce borrowing prices gradually. Furthermore, Federal Reserve Bank of Chicago President Austan Goolsbee cautioned central bank officials against maintaining a restrictive policy in place for longer than necessary, according to CNBC.
On Thursday, Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, said that the reports are simply positive overall, and “it supports the BoJ’s view and bodes well for further rate hikes, although the central bank would remain cautious because the last rate hike caused a sharp spike in the Yen.”
Yoshitaka Shindo, the Japanese economy minister, remarked that The economy is expected to gradually recover as salaries and incomes rise. Shindo also stated that the government will work closely with the Bank of Japan to develop a flexible macroeconomic policy.
Japan’s GDP increased by 0.8% quarter on quarter in Q2, exceeding market expectations of 0.5% and recovering from a 0.6% drop in Q1. This was the highest quarterly growth since Q1 2023. Meanwhile, annualized GDP growth rose to 3.1%, beating the market forecast of 2.1% and reversing a 2.3% drop in Q1. This was the strongest annual expansion since the second quarter of 2023.
US headline Consumer Price Index (CPI) increased 2.9% year on year in July.
The US headline Consumer Price Index (CPI) increased 2.9% year on year in July, slightly lower than the 3% increase in June and below market expectations. The Core CPI eliminates food and Energy rose 3.2% year on year, a tiny reduction from the 3.3% increase in June but in line with market expectations.
Jane Foley, senior FX strategist at Rabobank, believes that this week’s succession of US data releases, together with next week’s Jackson Hole event, will give the market with stronger insights into US policymakers’ likely moves. However, their major forecast is that the Fed would reduce rates by 25 basis points in September and most likely cut them further.
