According to FXStreet, on January 16, the Japanese Yen (JPY) continued to increase for the second consecutive day after BoJ Governor Kazuo Ueda suggested that the bank could raise interest rates at next week's meeting. In addition, rising inflationary pressures in Japan increase the likelihood that the BoJ will continue to tighten monetary policy, causing the yield on Japanese government bonds (JGB) to reach its highest level in many years.
In contrast, US government bond yields fell sharply on Wednesday after data showed US inflation cooling. This narrows the yield gap between the US and Japan, causing the USD to lose its advantage over the JPY.
In addition, lower-than-expected inflation data in the US has raised expectations that the US Federal Reserve (Fed) could cut interest rates twice this year. This weakened the US dollar, pushing the USD/JPY pair down to a four-week low, around 155.20 in the morning trading session on Thursday in Asia.
However, bullish market sentiment could limit demand for the JPY a safe-haven asset and support the USD/JPY pair somewhat. Investors are now waiting for US economic data such as retail sales and weekly jobless claims to seek short-term trading opportunities.
Governor Kazuo Ueda said on Wednesday that the BoJ will consider the possibility of raising interest rates at the policy meeting on January 23-24. These comments, along with the previous statement of Deputy Governor Ryozo Himino, have raised expectations for a rate hike, helping the Japanese Yen strengthen significantly.
The yield on the 10-year Japanese government bond has also risen to its highest level since 2011 on expectations that the BoJ will continue to tighten policy.
Meanwhile, US government bond yields fell on Wednesday after the US inflation report showed cooling indicators. Data showed that the December CPI increased by 0.4% compared to the previous month and 2.9% compared to the same period last year, lower than the 3.3% increase in November (after excluding food and energy prices).
The USD fell to a one-week low after the data, contributing to a sharp decline in USD/JPY.
Richmond Fed President Tom Barkin said that new figures show inflation is getting closer to the 2% target, but interest rates still need to be kept high for control.
The US's dovish inflation data also supported market optimism, reducing demand for safe-haven assets such as the JPY. Investors are now waiting for more US economic data and the upcoming BoJ policy meeting for further direction.
According to Lao Dong, updated at 11:00 on January 16, the USD/JPY exchange rate is currently fluctuating around 155.741 USD/JPY, meaning 1 USD can be exchanged for about 155 JPY.
