The USD/JPY has recovered from losses seen in the previous session and is currently trading around 159.40 during Asian hours on Tuesday. Still, the potential for further gains might be capped, as the Japanese yen (JPY) may find support from possible interventions by Japanese officials. Finance Minister Satsuki Katayama noted today that market volatility is increasing, indicating that the government is prepared to take action as needed, particularly in the foreign exchange arena.
Moreover, Bank of Japan Governor Kazuo Ueda mentioned that underlying inflation is steadily heading towards the bank’s 2% target. He emphasized that the central bank will continue to guide its monetary policy appropriately to ensure inflation remains stable and sustainable. However, it’s widely anticipated that the Bank of Japan will keep interest rates steady at 0.75% during its upcoming meeting on Thursday, while still leaving the door open for potential tightening in the future.
The rise in the USD/JPY pair is influenced by diminishing expectations for imminent short-term interest rate cuts from the Federal Reserve (Fed), largely due to heightened inflation concerns stemming from the situation in the Middle East, coupled with a strengthening US dollar. The worries about increasing inflation are being fueled by soaring oil prices, making the prospect of short-term monetary easing seem less likely.
According to the CME FedWatch tool, the markets generally anticipate that the U.S. central bank will maintain interest rates in the range of 3.50-3.75% at their Wednesday meeting. If the Fed decides to keep rates unchanged, it would mark the second consecutive pause following the previous easing cycle.
