Japanese yen strengthened against the US dollar for the second consecutive day.
The Japanese yen (JPY) recovers from a steep Asian session drop versus the US dollar, aided by US President Donald Trump’s tariff remarks, and closes in on a one-month high in the last hour.
The initial reaction to Trump’s tariff remarks fades amid bets on another Bank of Japan rate hike.
Investors became wary as fears resurfaced that Trump’s trade policies might spark a new wave of the global trade war. Apart from this, increased bets that the Bank of Japan (BoJ) will raise interest rates At its policy meeting later this week, support the safe-haven JPY.
USD recovery from a two-week low should limit losses in the USDJPY pair.
Meanwhile, US Treasury bond yields have extended a one-week downturn, with predictions that the Federal Reserve (Fed) will cut borrowing costs twice this year. The ensuing narrowing of the US-Japan rate disparity is viewed as another factor favoring the JPY. However, a minor US Dollar (USD) recovery from a two-week low reached on Monday helps limit losses for the USD/JPY pair, as attention remains focused on the critical BoJ meeting beginning on Thursday.
Daily Market Update: Japanese yen supported by bets for another BoJ rate hike this week.
The recent hawkish comments from Bank of Japan Governor Kazuo Ueda and Deputy Governor Ryozo Himino, together with the increasing inflationary pressure in Japan, heightened the The Japanese central bank expected to raise interest rates soon. The markets have priced in an 80% possibility of a rate hike later this week.
According to persons acquainted with the subject, the BoJ will reach its final decision after reviewing economic statistics, markets, and the ramifications of US economic policies. Officials believe that US President Donald Trump has the potential to disrupt markets or alter global economic expectations.
Trump announced on Tuesday that he intends to put 25% tariffs on Canada and Mexico, with a target date of early February. Trump’s words reignite inflation concerns, which could push the Federal Reserve to stay to its hawkish posture, resulting in a swift US dollar rebound from A two-week low.
Japan’s Finance Minister, Katsunobu Kato, said on Tuesday that he expects the Bank of Japan to implement appropriate monetary policies in order to meet the 2% inflation objective. Kato noted that Japan will respond appropriately after reviewing the new US President’s policies and will closely watch the impact of US actions on the global economy, Japan.
Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said on Tuesday that the US economy’s prognosis is dependent on Trump’s macroeconomic policies.
Atsushi Mimura, Japan’s Vice Finance Minister for International Affairs and top foreign exchange official, said on Tuesday that the US economy’s prognosis is dependent on Trump’s macroeconomic policies. Mimura emphasized the importance of closely monitoring whether China’s recent export strength will continue.
The US Producer Price Index (PPI) and Consumer Price Index (CPI), which were reported last week, showed signs of declining inflation. This signals that the Fed may not rule out the potential of rate decreases. End of this year, which keeps US Treasury bond yields low and acts as a headwind for the greenback.
There is no relevant market-moving economic data scheduled for release on Tuesday, either from Japan or the United States. Furthermore, the attention remains on the highly anticipated two-day BoJ policy meeting, which begins on Thursday and will play an important role in defining the Japanese yen’s near-term trend.
