Daily Digest Market Movers: Japanese Yen struggles to register any meaningful recovery amid the BoJ’s dovish outlook
- The Japanese Yen continues to be weighed down by the Bank of Japan's cautious approach and uncertain outlook for future rate hikes, which, along with a bullish US Dollar, lifted the USD/JPY pair to a fresh 34-year peak on Thursday.
- The USD climbed to its highest level since November 14 as investors pushed back the expected timing of the first interest rate cut by the Fed to September from June following the release of hot US consumer inflation figures on Wednesday.
- Investors also pared their bets for the number of rate cuts of 25 basis points (bps) this year to fewer than two, or roughly 42 bps, from about three or four a few weeks ago in the wake of hawkish comments by several Fed officials.
- Richmond Fed President Thomas Barkin said on Thursday that the latest data did not increase his confidence that disinflation is spreading in the economy and that the central bank is not yet where it wants to be on inflation.
- Furthermore, New York Fed President John Williams noted that inflation setbacks are not a surprise and that the central bank does not need to change policy in the very near term, though eventually it will need to cut rates.
- The yield on the rate-sensitive two-year and the benchmark 10-year US government bonds held steady near a five-month peak after data on Thursday showed that the US Producer Price Index (PPI) rose by a modest 0.2% in March.
- The recent jawboning from Japanese authorities, showing readiness to intervene in the markets to address any excessive falls in the domestic currency, and persistent geopolitical tensions lend some support to the safe-haven JPY.
- Japan's Finance Minister Shunichi Suzuki reiterated on Friday that he will closely watch FX moves with a high sense of urgency as a weak JPY could push up import prices and have a negative impact on consumers and firms.
- The USD/JPY pair remains on track to register strong weekly gains, up for the fifth straight week, as market participants now look to the release of the Preliminary Michigan Consumer Sentiment Index for short-term trading impetus.
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