USDJPY falls dramatically to around 139.50, with all eyes on Fed policies.
During Monday’s North American session, the USDJPY pair fell to a new yearly low of 139.50. The asset falls ahead of monetary policy decisions by the Federal Reserve (Fed) and the Bank of Japan (BoJ), which will be release on Wednesday and Friday, respectively.
Market expectations for substantial Fed interest rate reduction have risen.
The market remains optimistic, as the Fed is almost set to shift to policy normalization beginning Wednesday. This would be the Fed’s first interest rate decrease decision in more than four years since it announced. The battle against rising inflation as a result of pandemic-induced stimulation.
Meanwhile, the discussion over how much the Fed will decrease interest rates has shifted. Market expectations for the Fed to reduce interest rates by a large margin, which were substantially lower last week before the release of the US Producer Price Index (PPI), have increased. The CME FedWatch tool shows that the chance of the Fed reducing interest rates by 50 basis points (bps) increased to 65% from 30% a week ago.
The US PPI report revealed that annual headline producer inflation fell faster than predicted to 1.7%, the lowest level in six months.
Aside from the interest rate decision, investors will also focus on the Fed’s dot plot, which will show interest. All officials provided rate forecasts for various timeframes. The CME FedWatch program also suggests that the central bank will decrease interest rates by at least 100 basis points this year.
The BoJ anticipated to keep interest rates at 0.25% on Friday.
In the Tokyo region, investors expect the BoJ to leave interest rates constant while retaining hawkish commentary on price pressures and GDP prospects. The BoJ raised interest rates to 0.25%. Standard Chartered analysts expect the Bank of Japan’s interest rates to rise to 0.5% by the end of the year. The trust of market professionals has grown since inflation has remained above 2% for the past 21 months.
