Opposing policies of US and Japanese regulators weaken USDJPY

07 March 2024 96
Opposing policies of US and Japanese regulators weaken USDJPY

Data released Thursday showed Japanese wage growth accelerated at the fastest clip since June.


Several government officials support a rate increase in the near term, while central bank board member Junko Nakagawa said the economy is steadily making progress toward the authority’s 2% price target.


The yen’s rally, including in the USDJPY pair, came even as Commodity Futures Trading Commission data for the period ended Feb. 27 showed that hedge funds increased their short positions on the Japanese currency to the highest levels in more than six years.


Speculation of higher interest rates also supported Japanese bank shares, with the Topix banks index rising for a third day. Volatile overnight indexed swaps point to 56% odds of a March rate increase and 89% by the April meeting.


Against this backdrop, yesterday’s Powell remarks left intact expectations that the Fed will deliver three quarter-point rate cuts this year. While traders still see policy easing as early as June, their forecast is more aligned with the Fed’s than it was at the start of the year.


“While Powell didn’t commit to rate reductions in the near future, his positivity concerning the trajectory of inflation amidst confidence that the central bank’s current rate is likely at its peak is enough for market participants,” as stated in Interactive Brokers.


Jerome Powell once again made it clear that he expects the Federal Reserve to cut rates this year — even as a strong economy keeps officials on hold for now.

The opposite trajectories of the US dollar and Japanese yen form good conditions for selling the USDJPY pair.


The final recommendation is to sell USDJPY. The profit could be fixed at the level of 145.00.

The loss — at the level of 152.00.

This content is for informational purposes only and is not intended to be investing advice.

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