USD/JPY bulls took a momentary break after reaching the Year-to-Date (YTD) high, edging down to 139.50 during the early hours of Thursday’s European session. Despite relinquishing some intraday gains, the yen pair continues to face challenges amid mixed market conditions.
Bank of Japan (BoJ) Governor Kazuo Ueda recently commented on the situation, stating that while they are observing positive signs in the economy, there is still a considerable distance to go before reaching a stable and sustainable inflation target. Ueda further affirmed that the BoJ would patiently maintain its accommodative monetary policy.
In contrast, US Treasury bond yields remain strong, reaching their highest levels since mid-March, providing support to USD/JPY prices. Furthermore, concerns over a downward revision in Germany’s Q1 GDP have renewed fears of a recession in the European powerhouse, bolstering the US Dollar and elevating bond yields to multi-day highs.
While BoJ’s Ueda defends the easy monetary policy, the minutes from the recent Federal Open Market Committee (FOMC) Meeting reveal a divided sentiment among policymakers regarding the recent 0.25% rate hike by the US central bank.
This uncertainty casts doubt on the market’s expectations of another rate increase in June, despite Atlanta Fed President Raphael Bostic and Federal Reserve Governor Christopher Waller expressing hawkish views.
Adding to the mix, the inability of US policymakers to reach an agreement on extending the debt ceiling, combined with an upcoming long weekend for the House Representatives, contrasts with negotiators’ claims of progress in recent talks.
Notably, global rating agencies like Fitch and Moody’s have grown cautious about the US credit rating, with the US Treasury Department acknowledging these concerns. Consequently, there is a growing shift towards risk aversion in the market, boosting the US Dollar and yields.
Amid these developments, US stock futures face some setbacks, while US Treasury bond yields remain strong, reaching their highest levels since mid-March.
Although the USD/JPY buyers pause momentarily, they are still influenced by concerns surrounding a potential US default and the divergent policies between the Federal Reserve and the Bank of Japan.
In addition to these factors, market participants should also keep an eye on the US weekly jobless claims, the Chicago Fed National Activity Index, and pending home sales for further guidance and clarity.
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