The USDPY currency pair has fallen 14.6% from its October highs as the Japanese yen rallied against the US dollar amid fears that Japan’s inflation levels were rising. The Fed had maxed out its aggressive rate hikes and was about to change course.
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However, the US Federal Reserve and the Bank of Japan have been hesitant to change their monetary policies, with the Fed promising to keep interest rates high and the BoJ promising to maintain its ultra-easy monetary policies.
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Therefore, we find ourselves at an exciting juncture where the Fed and the BoJ have no choice but to change their monetary policies or risk plunging their economies into crisis. Furthermore, the latest inflation data from Tokyo indicated that inflation in Japan’s capital rose to 4.3% in January, which is way above the BoJ’s 2.0% inflation target.
The rising inflation in Tokyo leaves the BoJ with little choice but to start raising rates and slowing down its quantitative easing programs to fight inflation or risk it rising much higher, making it more difficult to control.
Many are looking to the BoJ to announce tightening measures in the coming weeks to rein in inflation, boosting the Japanese yen. Therefore, from a fundamental perspective, the Japanese yen is set to keep rising against its peers as the BoJ adopts hawkish monetary policies.
On the other hand, the Federal Reserve is expected to implement a lower rate hike of 25 basis points at its monetary policy meeting on February 1, 2023.
Next week promises to be exciting as the Fed, the BoE, and the ECB are expected to announce their interest rate decisions. The BoJ is not scheduled to make any announcements, but the yen could benefit from what the other leading central banks decide.
Meanwhile, the yen will keep rising against the dollar into the foreseeable future as investors react to the BoJ’s expected changes in monetary policy stance.
*This is not investment advice.
The USDJPY price chart.
The USDJPY currency pair has fallen 14.56% from its October high of 151.97 to its current price of 129.85.
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