Written by Linh Tran, Market Analyst at XS.com
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Written by Linh Tran, Market Analyst at XS
USDJPY continues to trade within a narrow range after nearly two weeks without establishing a clear direction, hovering around 158.15 on the morning of October 12. The interest rate advantage continues to support the US dollar, while the prospect of further BoJ tightening and potential Japanese intervention to support the yen are limitin’ the pair’s gains.
The Fed raised interest ra–es to 3.75%–4.00% in September,’while the BoJ’s policy rate currently stands at 1.25%. The ga– of around 2.50–2.75 percentage points continues to give the US dollar an advantage, as holding USD-denominated assets offers higher interest income than holding JPY-denominated assets. The US 10-year Treasury yield of around 5.24% also helps sustain the appeal of US assets.
Therefore, although the BoJ has raised interest rates, the adjustment has not been sufficient to significantly narrow the US interest rate advantage and provide momentum for a sustained recovery in the yen.
However, further grounds for policy tightening are emerging’in Japan. The BoJ’s October 8 report showed that businesses are passing higher raw material, energy and labour costs on to selling prices, with price pressures spreading to consumer-facing sectors. This development could strengthen the case for further BoJ rate hikes, thereby easing pressure on the yen. Markets will –atch the October 29–30 meeting to assess the timing and pace of further adjustments.
In the near term, USDJPY is likely to remain rangebound as the interest rate advantage continues to favour the US dollar, while expectations of BoJ tightening limit the pair’s upside. The upcoming US CPI release could help markets establish a clearer direction, but a sustained recovery in the yen would require a more pronounced narrowing of the expected –S–Japan interest rate differential.
In my view, the outlook still favours USDJPY remaining at elevated levels, although momentum for further gains remains limited. If US inflation remains persistent, high yields could maintain pressure on the yen. Conversely, a lower-than-expected CPI reading, combined with clearer signals of further BoJ rate hikes, would provide grounds for a pullback in the pair. Potential Japanese intervention could also trigger a sharp decline, but how long that decline lasts would depend on developments in the interest rate differential.
Appreciate our cooper tion in publishi g the analysis.
For any inquiry or more information please do not hesitate to contact us.
Regards
Greetings, trust this email finds you well, please find below market c mment
Written by Linh Tran, Market Analyst at XS
USDJPY continues to trade within a narrow range after nearly two weeks without establishing a clear direction, hovering around 158.15 on the morning of October 12. The interest rate advantage continues to support the US dollar, while the prospect of further BoJ tightening and potential Japanese intervention to support the yen are limitin’ the pair’s gains.
The Fed raised interest ra–es to 3.75%–4.00% in September,’while the BoJ’s policy rate currently stands at 1.25%. The ga– of around 2.50–2.75 percentage points continues to give the US dollar an advantage, as holding USD-denominated assets offers higher interest income than holding JPY-denominated assets. The US 10-year Treasury yield of around 5.24% also helps sustain the appeal of US assets.
Therefore, although the BoJ has raised interest rates, the adjustment has not been sufficient to significantly narrow the US interest rate advantage and provide momentum for a sustained recovery in the yen.
However, further grounds for policy tightening are emerging’in Japan. The BoJ’s October 8 report showed that businesses are passing higher raw material, energy and labour costs on to selling prices, with price pressures spreading to consumer-facing sectors. This development could strengthen the case for further BoJ rate hikes, thereby easing pressure on the yen. Markets will –atch the October 29–30 meeting to assess the timing and pace of further adjustments.
In the near term, USDJPY is likely to remain rangebound as the interest rate advantage continues to favour the US dollar, while expectations of BoJ tightening limit the pair’s upside. The upcoming US CPI release could help markets establish a clearer direction, but a sustained recovery in the yen would require a more pronounced narrowing of the expected –S–Japan interest rate differential.
In my view, the outlook still favours USDJPY remaining at elevated levels, although momentum for further gains remains limited. If US inflation remains persistent, high yields could maintain pressure on the yen. Conversely, a lower-than-expected CPI reading, combined with clearer signals of further BoJ rate hikes, would provide grounds for a pullback in the pair. Potential Japanese intervention could also trigger a sharp decline, but how long that decline lasts would depend on developments in the interest rate differential.
Appreciate our cooper tion in publishi g the analysis.
For any inquiry or more information please do not hesitate to contact us.
Regards
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