- The USD/JPY pair is expected to ease after reaching a two-week high of 148.38 on Monday.
- The US Dollar’s post-Fed rally is losing momentum, as the US Dollar index ends a three-day winning streak.
- Fed Governor Miran indicates a strong interest in restrictive monetary policies, advocating for further interest rate cuts.
The Japanese Yen (JPY) managed to recover some of its losses against the US Dollar (USD) on Monday, with USD/JPY peaking at 148.38 during the Asian trading session, the highest mark since early September.
As of now, the pair is hovering around 147.73 in the US market, reflecting a loss of steam in the greenback’s recent surge. Traders are re-evaluating both the Federal Reserve’s cautious approach to easing and the steady monetary stance of the Bank of Japan (BOJ).
The US Dollar Index (DXY), which measures the greenback against a range of six major currencies, is currently around 97.38, marking the end of its three-day rise. Recently, the dollar dipped to a new yearly low—its weakest since February 2022—following last week’s 25 basis-point interest rate cuts. However, comments from Fed Chairman Jerome Powell indicated a gradual, data-driven process for further easing, which quickly shifted market sentiments and prompted a rebound.
Earlier on Monday, additional remarks from Fed Governor Stephen Milan added fuel to the ongoing discussion about monetary policy. Milan pointed out that current monetary policy is moving into “restrictive territory,” cautioning against leaving short-term interest rates too low, which could lead to unnecessary layoffs and increase unemployment risks. He reiterated his support for a series of 50 basis-point cuts to recalibrate the policy.
On the other hand, the BOJ stabilized its short-term policy rate at 0.50% last week while signaling a gradual normalization process, which includes plans to slowly reduce holdings in large-scale ETFs and REITs. Governor Midorida noted that underlying inflation is nearing the 2% target but warned that long-term food price pressures and US tariffs may pose risks for rising prices.
He pointed out that real interest rates remain significantly negative. If the outlook for growth and inflation continues to hold, there might be room for policy tightening. There were also visible divisions among the board members regarding the potential for an immediate increase to 0.75%. However, the BOJ’s guidance remains cautious, stressing the importance of lasting wage growth before any adjustments can be considered.
Looking ahead, market watchers will be paying close attention to the September S&P Global Purchasing Manager Index (PMI) from the US, along with statements from Fed Chairman Powell and other policymakers. On Wednesday, the focus will also shift to Japan’s manufacturing and services PMIs.
