USD/JPY is trading around 159.10 in the early Asian session on Friday, showing a 0.19% increase. Traders are betting on Fed rate cuts in September following the weaker US June CPI inflation data. There is a possibility of FX intervention from Japanese authorities which could support the JPY and limit the upside for the pair.
The pair rebounded from a three-week low of 157.41 earlier on Friday. Concerns about potential FX intervention by Japanese officials may restrict further gains. Traders will be watching for the US June Producer Price Index (PPI) and the preliminary July Michigan Consumer Sentiment gauge later in the day.
The recent low CPI reading in the US has raised expectations of a Fed rate cut starting in September. Annualized headline CPI inflation eased to 3.0% YoY in June from 3.3% previously, with monthly CPI inflation also lower than expected. Fed Chair Jerome Powell hinted at the possibility of rate cuts if economic data continues to show improvements.
The Japanese Yen strengthened on speculation of FX intervention by Japanese authorities. Masato Kanda, a top currency diplomat, mentioned the rapid movement of the JPY and the potential for intervention if necessary. This intervention could support the JPY and pose challenges for USD/JPY in the near term.
The Japanese Yen’s value is influenced by various factors including the performance of the Japanese economy, Bank of Japan’s policy, bond yield differentials, and risk sentiment among traders. The Bank of Japan plays a crucial role in controlling the Yen’s value through interventions in the currency market. The policy divergence between the Bank of Japan and other central banks, particularly the US Federal Reserve, favors the US Dollar against the Japanese Yen.
Additionally, the Japanese Yen is considered a safe-haven investment, attracting investors during times of market volatility. This perception of reliability and stability strengthens the Yen against riskier currencies in turbulent market conditions.