The USD/JPY pair rose to 148.31 on Monday, building on its gains from the prior week as the US dollar exhibited strength across the market. The yen encountered further strain due to increasing expectations surrounding forthcoming remarks from Federal Reserve officials and the impending publication of essential US inflation figures. Last week, the Federal Reserve implemented a 25-basis-point cut, a move that was largely anticipated and marks its first reduction since December.
The central bank’s forecasts suggested two additional cuts prior to year-end. This presents a stark contrast to the position held by the Bank of Japan. On the previous Friday, the Bank of Japan maintained its key interest rate at 0.5% per annum for the fifth consecutive meeting, a decision that aligned perfectly with market expectations. The central bank, in its accompanying statement, characterized the economic recovery as moderate while highlighting ongoing weaknesses and cautioning about risks associated with global trade policy.
The regulator has taken a notable step by unanimously approving plans to initiate the sale of ETFs and J-REITs from its extensive portfolio. This detail is especially significant and may be seen as a prudent indication that the bank is gearing up to conclude its extensive asset purchase program. This week, attention will turn to the most recent PMI data and inflation statistics for Tokyo, in addition to the publication of the minutes from the BoJ’s July meeting. The information contained in these documents could be pivotal in understanding the timing and nature of the regulator’s forthcoming policy actions.
The yen continues to face considerable pressure, trapped between a strong US dollar and the Bank of Japan’s careful, measured strategy towards policy normalization. The trajectory for USD/JPY continues to trend upward, dependent on the key data releases this week that are expected to support the existing fundamental and technical outlook.