The USD/JPY exchange rate lost some ground after reaching a high of about 156.40 during Tuesday’s European trading session. Nevertheless, it’s still up by 0.12%, trading around 156.10.
The yen is seeing some buying interest after the Bank of Japan’s Governor, Kazuo Ueda, hinted at continuing with policy normalization and noted that inflationary pressures are mounting.
Ueda remarked, “We have been gradually adjusting our relaxation measures as we anticipate the underlying component to approach 2%.”
Investor sentiment turned a little more cautious regarding the Bank of Japan’s plans for raising interest rates after Japan released third-quarter GDP data that fell below expectations. The revised numbers indicate that the economy shrank by 0.6%, compared to an earlier estimate of 0.4%. This situation bolsters Prime Minister Sanae Takaichi’s expansive fiscal spending strategy while diminishing the likelihood of aggressive monetary tightening.
Additionally, a 7.6-magnitude earthquake that hit Japan’s northeastern region on Monday added downward pressure on the yen. The government ordered evacuations in the affected areas, and the Japan Meteorological Agency (JMA) also issued a tsunami alert.
Regarding the US dollar, investors are eyeing Wednesday’s upcoming Federal Reserve announcement on monetary policy. It’s anticipated that the Fed will reduce interest rates by 25 basis points to a range between 3.50% and 3.75%. The Fed will likely try to navigate a challenging balancing act, given the persistent price pressures above the 2% target amidst weak labor demand.
