USD/JPY pair rebounds to near 149.30 during the Asian trading hours on Wednesday. However, the global risk-off sentiment and rising bet of more interest-rate hikes from the Bank of Japan (BoJ) might boost the Japanese Yen (JPY) and cap the upside for the pair.
The BOJ is anticipated to raise rates from 0.50% to 0.75% this year, which could influence investor sentiment and support the JPY. Overnight index swaps are fully pricing an increase in borrowing costs by September and pricing in a 50% odd move as soon as June, according to Bloomberg.
Japan's Services Producer Pricing Index (PPI) released on Tuesday, supports the case of the BoJ rate hike. This comes on top of Japan's robust consumer inflation numbers, reaffirming the prospect that the BoJ would raise interest rates further, which continues to support the JPY.
The US Conference Board's Consumer Confidence fell the most since August 2021, declining to 98.3 in February versus 105.3 prior. This, in turn, could weigh on the Greenback against the JPY. Traders will take more cues from the Fedspeak later this week. Any hawkish comments from Federal Reserve (Fed) officials could lift the US Dollar in the near term.
One of the Bank of Japan's mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ's stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
Source: Fxstreet
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