Daily Digest Market Movers: Japanese Yen continues to be undermined by the divergent BoJ-Fed policy expectations
- Data released on Friday showed that Japan’s consumer inflation eased more than expected in March, raising uncertainty about whether the Bank of Japan will raise rates again and weighing on the Japanese Yen.
- Iran signaled that it has no plans to retaliate against the Israeli limited-scale missiles strike on Friday, which helps improve investors' appetite for riskier assets and further dents the JPY’s relative safe-haven status.
- BoJ Governor Kazuo Ueda said on Friday that the central bank might consider raising interest rates again if significant declines in the Yen substantially boost inflation, lending support to the domestic currency.
- Japan's Finance Minister Shunichi Suzuki issued fresh warnings to speculators about pushing down the JPY too much and reiterated that he would take appropriate action against excessive currency market moves.
- According to Fed funds futures, the Federal Reserve is now anticipated to cut interest rates by roughly 40 basis points (bps), or less than two cuts this year starting September in the wake of sticky US inflation.
- This suggests that the large rate differential between the US and Japan will stay, which should act as a headwind for the JPY and lend support to the USD/JPY pair ahead of the crucial BoJ monetary policy decision.
- Markets predict no policy change following last month’s historic decision to end the negative rate policy and Yield Curve Control (YCC) program, suggesting that the focus will remain on the quarterly outlook report.
- From the US, the Advance Q1 GDP print and the Personal Consumption Expenditures (PCE) Price Index are due for release on Thursday and Friday, respectively, which should influence the US Dollar price dynamics.
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