The USD/JPY exchange rate has picked up momentum for the second consecutive day, establishing a high not seen in over a week, around 155.35 on Thursday. Still, as trading began in Europe, the price dropped a bit and is now hovering just above the significant level of 155.00, showing an increase of nearly 0.20% for the day.
Pressure is mounting on Prime Minister Sanae Takaichi to unveil additional economic support after Japan’s GDP growth faltered in the last quarter. The International Monetary Fund (IMF) has cautioned against reducing the consumption tax, arguing it would diminish Japan’s fiscal capabilities and heighten debt risks. This, paired with a generally optimistic market sentiment, is causing the safe-haven Japanese yen (JPY) to weaken, which is somewhat beneficial for the USD/JPY pair in light of the mildly positive trend for the US dollar (USD).
Indeed, the US Dollar Index (DXY), which tracks the dollar’s value against a collection of currencies, climbed to its highest point in more than a week on Wednesday due to the US Federal Reserve’s shift away from a dovish approach. Minutes from the Federal Open Market Committee’s January gathering revealed that members are split on when to implement further rate cuts. Some indicated that cuts might be warranted if inflation trends down as anticipated, while others warned that acting too quickly could jeopardize the 2% inflation goal.
Nevertheless, the market still anticipates a 25 basis point rate cut from the Fed three times throughout this year. This outlook diverges significantly from the prevailing belief that the Bank of Japan (BOJ) will adhere to its policy normalization strategy. Moreover, rising geopolitical tensions could limit substantial losses for the yen and keep the USD/JPY pair stable. Traders are eyeing upcoming US macroeconomic data for guidance, but the focus remains on Friday’s critical inflation reports from both Japan and the US.
