Title: USD/JPY Logs 11-Session Rally Amid Rising US Yields and BoJ Hesitation
By Mitrade News (Original Author: FXStreet Team)
The USD/JPY currency pair extended its upward momentum for the 11th consecutive trading session on Monday, reaching as high as the 150.16 mark, a level not seen since early November 2022. This extended rally comes as the US dollar continues to attract bullish interest amid higher Treasury yields and rising expectations that the Federal Reserve will maintain a hawkish stance in the near term. Conversely, the Bank of Japan (BoJ) remains committed to its ultra-loose monetary policy, placing downward pressure on the Japanese yen. These diverging monetary policy paths have created robust support for the USD/JPY pair.
Key Developments Supporting the USD/JPY Rally
– The pair has now posted gains for 11 straight sessions, a streak not seen in over a decade.
– On Monday, USD/JPY traded at a high of 150.16, marking its highest level in more than 11 months.
– Yields on US 10-year Treasury bonds surged to a fresh cycle high of 4.71 percent, underpinning the US dollar.
– Despite heightened risks associated with potential Japanese intervention, the economic divergence between the US and Japan continues to favor a stronger dollar.
The Role of US Economic Data and Fed Expectations
The rally in the USD/JPY pair has been primarily driven by strong US economic indicators and speculation that the Federal Reserve will retain higher interest rates for longer than previously anticipated. Recent economic figures continue to paint a resilient outlook for the US economy despite tightening monetary conditions.
– Consumer confidence in the US remains elevated, showing that US households still feel positive about the economic outlook.
– Inflation indicators like the Core PCE Price Index remain above the Fed’s 2 percent target, reinforcing the case for persistent restrictive policy.
– The labor market continues to exhibit strength, with jobless claims remaining near historic lows and job openings still robust.
– As a result, Fed Chair Jerome Powell and other officials have signaled that interest rates may stay elevated well into 2024.
These developments have fueled a rally in US Treasury yields. The benchmark 10-year yield touched a multi-year high of 4.71 percent, increasing the attractiveness of US assets relative to Japan’s lower-yielding instruments, thus driving up the dollar against the yen.
Bank of Japan’s Dovish Policy Continues to Weigh on Yen
In contrast, the BoJ remains steadfast in keeping interest rates in negative territory and continuing its yield curve control (YCC) policy. Although there have been sporadic statements from BoJ officials implying potential future adjustments, concrete policy shifts remain largely absent for now.
– Governor Kazuo Ueda has suggested that the BoJ may eventually move away from its ultra-loose policy if wage growth and inflation continue trending higher.
– However, recent core inflation data in Japan indicates sluggish progress, with CPI running below the Bank’s expectations.
– Wage negotiations have yet to show meaningful increases, and the BoJ believes sustainable inflation remains elusive.
– As a result, major shifts in BoJ policy are unlikely before 2024.
The policy discrepancy has led to Japan’s currency depreciating notably against the greenback. The yen is now approaching levels regarded by currency markets as intervention territory, as Japanese authorities aim to limit excessive depreciation to support domestic purchasing power and financial stability.
Japanese Intervention Risks Looming
Given the yen’s continued slide toward the psychological 150.00 threshold, speculation is increasing over whether Japanese authorities will step in to stabilize the currency. In October 2022, Japan intervened in foreign exchange markets when USD/JPY crossed the 150.00 level.
– Finance Minister Shunichi Suzuki has recently stated that authorities are “monitoring currency moves with a sense of urgency.”
– Vice Finance Minister for International Affairs Masato Kanda has also reinforced that Japan would not rule out
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