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All eyes are on Fed testimony as BoJ sticks to easing cycle -by Ecork

Talking Points Japanese Yen

The US dollar against the Japanese yen corrects the decline after Federal Reserve Rate Decision As the Bank of Japan (BoJ) maintains its quantitative and qualitative easing (QQE) program with yield curve control (YCC), developments from the United States may affect the exchange rate during the coming days as President Jerome Powell He is scheduled to testify before Congress.

Basic Outlook for the Japanese Yen: Bearish

USD/JPY is on the cusp of testing an annual high (135.59) as the Bank of Japan confirms that the central bank’You will not hesitate to take additional mitigation measures if necessary‘, It seems as if the ruler Haruhiko Kuroda And its partners will use their non-standard tools in 2022, officials expect.”That short- and long-term interest rates remain at their current or lower levels. “

As a result, divergent paths between the Bank of Japan and the Federal Open Market Committee (FOMC) may keep the USD/JPY afloat as Fed officials plot a steeper path for US interest rates, and fresh comments from Chairman Powell could lead to Bullish reaction to the dollar. The head of the central bank must agree to a restrictive policy before Congress.

In turn, the US dollar / Japanese yen may try to test October 1998 high (136.89) The FOMC plans to implement higher interest rates throughout 2022, but it remains to be seen whether President Powell will continue to rule out a 100 basis point rate hike as the central bank tries to prevent the US economy from facing a hard landing.

However, the Fed’s semi-annual testimony may support USD/JPY as the Bank of Japan remains reluctant to change gears, and expectations of higher US interest rates may fuel the rebound from the monthly low (131.49) as the FOMC ramps up its efforts. to combat inflation.

— Written by David Song, Currency strategic

Follow me on Twitter at @DavidJSong

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