The USD/JPY pair strengthens during the Asian session on Tuesday, building upon the overnight rebound of approximately 70-75 pips from the 140.75 area. Currently trading just above the mid-141.00s, the spot prices remain within striking distance of a two-week high achieved last Friday.
Despite concerns about a global economic downturn, investor confidence receives a boost from hopes for additional stimulus measures.
China’s National Development and Reform Commission (NDRC) announces new measures aimed at promoting and encouraging private investment in specific infrastructure sectors while providing strengthened financing support for private projects.
This positive sentiment in equity markets weighs on the safe-haven Japanese Yen (JPY), acting as a tailwind for the USD/JPY pair.
The JPY faces further pressure as expectations arise that the Bank of Japan (BoJ) will maintain its dovish stance after its two-day meeting concludes on Friday. A government spokesperson predicts Japan’s inflation to slow to around 1.5% next year when excluding one-off factors.
Nevertheless, Japan’s top currency diplomat, Masato Kanda, suggests recent inflation and wage rises have exceeded expectations, supporting the possibility of an upgrade in the BoJ’s inflation forecasts. This leads to cautious trading around the USD/JPY pair.
On the other hand, the US Dollar (USD) consolidates recent recovery gains after reaching its lowest level since April 2022 last week. Market participants show hesitancy and prefer to wait on the sidelines ahead of crucial central bank events this week.
The Federal Reserve (Fed) is expected to announce a 25 bps rate hike on Wednesday, but investors remain uncertain about the central bank’s future policy stance, whether it will adopt a more dovish approach or stick to its forecast of a 50 bps rate hike by year-end.
As attention turns to the accompanying monetary policy statement and Fed Chair Jerome Powell’s post-meeting press conference remarks, investors eagerly seek clues about the Fed’s rate-hike trajectory, which will significantly impact the near-term USD price dynamics.
Subsequently, focus will shift to the BoJ’s monetary policy update on Friday, along with crucial US macro releases, including the Advance Q2 GDP report and the Core PCE Price Index—the Fed’s preferred inflation gauge. These factors will determine the next directional move for the USD/JPY pair.
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