Oct 19, 2023

USDJPY is approaching the 150 level again, despite recent global tensions and a rally in safe-haven assets.

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USDJPY: Daily Chart

USDJPY is now approaching 150, ahead of the 151.90 level where intervention created the market top in 2022.

The yen has always been a safe haven asset in times of international stress, but the rise in US Treasury yields is adding to its weakness. Tomorrow brings data with a speech from Federal Reserve Chairman Jerome Powell.

The market will not be expecting any surprises after recent hawkish statements and recent comments from Fed officials, saying the market has been doing the Fed’s work with rising bond yields in the open market.
Tomorrow’s data will also show inflation figures for the Japanese economy.

The Bank of Japan is expected to raise its inflation forecasts this month to show prices exceeding its 2% target for two straight years, according to Reuters. Fresh quarterly growth and inflation forecasts are due at its two-day policy meeting ending Oct. 31. The BOJ is set to raise its core consumer inflation forecast for the year to near 3% from the current 2.5% projection made in July, sources said.

The bank is also seen upgrading its forecast for 2024 from the current 1.9% to at least 2%, as recent rises in oil prices are expected to push up utility bills, they said. That could be complicated further with oil rising again amid Middle East tensions.

The revisions would add further to the pressure on the BOJ’s argument that it can keep monetary policy ultra-loose because of “sustained” prices below 2%. The bank would also be pressured to lift its 1% cap on the 10-year government bond yield set only three months ago.

“The BOJ may upgrade its price forecasts, but it probably wants to keep its easy-policy framework intact for now. What it could do, instead, is raise the cap and explain it as aimed at making the framework more flexible,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley.

“But doing so could put the BOJ’s accountability on the line as actual rates would move too far away from its 0% target.”

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