Yen Weakens as Fed Work on Inflation

USD/JPY

The USD/JPY currency pair continued its rally higher on what proved to be an interesting Monday for markets as a whole. The USD was firmer across the board as the dollar index printed fresh highs around the 114.50 area.

The Yen has delivered around 75% of the gains achieved on the back of the Bank of Japan’s (BoJ) FX intervention last week, with the pair reaching a high of 144.810. The Bank of Japan (BoJ) has a divergent view of the global tightening race, while the US Federal Reserve is persistently hawkish.

The Fed expects to continue raising rates with a year-end target of 4.5-4.75%. Yesterday brought comments from Fed policymaker Loretta Mester who reiterated the need for higher rates to keep inflation in check.

Charles Evans, another policy maker, confirmed earlier today that combating inflation is the number one job for the Fed with a tougher rate environment to persist for a while.

Later in the day, we have Fed Chair Jerome Powell speaking, followed by policymakers James Bullard and Neil Kashkari, with rhetoric expected to remain unchanged.

Bank of Japan (BoJ) Governor Haruhiko Kuroda stated that there would be no change in forwarding guidance for two to three years. This spiked volatility in the Yen resulting in the Finance Minister’s decision to intervene in the FX markets for the first time in 24 years.

Although, Governor Kuroda and Finance Minister Shunichi Suzuki stated that they are not defending price levels but are dealing with heightened volatility and excessive moves. As long as the Yen weakens gradually without spikes in volatility, the Bank will not be intervening.

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