Japanese Yen Fluctuates Strongly Due to Unclear Policy from BoJ
The Japanese Yen (JPY) has seen significant volatility over the past week as conflicting economic and political factors have come into play. Japan announced a revised GDP growth rate of 5.6% in the third quarter, much higher than previously forecast. This is a positive sign, showing that the Japanese economy is recovering strongly.
However, the market was disappointed by the cautious tone of the Bank of Japan (BoJ). Although BoJ Governor Kazuo Ueda has hinted at a possible rate hike, other officials have remained cautious, leaving investors skeptical about the possibility of a policy change in December. The producer price index (PPI) rose 0.3% in November and the highest increase in basic wages since 1992 has created inflationary pressures, but the BoJ has yet to act decisively.
Elsewhere, the yen continued to play its role as a safe haven as investors sought to preserve capital amid turmoil in the Middle East and Europe. However, the yen’s gains were tempered by optimism in global stock markets as major central banks look set to ease monetary policy in 2024.
USD lacks momentum to break out despite rising bond yields
On the other hand, the USD has little chance of gaining strength. The yield on the 10-year US government bond increased slightly, but US economic data showed a weakening of the labor market, with the unemployment rate rising to 3.9%. Although the CPI and PPI in November both exceeded expectations, concerns that the Fed would maintain a tightening policy for a long time were not enough to create momentum for the greenback to break out.
The market expects the Fed to keep interest rates unchanged at its December meeting and signal caution about its plans to cut interest rates in 2024. US bond yields, although inching up, still hovered at their lowest levels in a month, adding pressure to the USD's rally.
Next Week Outlook: Focus on the Fed and BoJ
Next week, the market will focus on two important events: the Fed and the BoJ policy meetings. If the Fed signals a more dovish stance on monetary policy, the USD could come under great pressure. On the contrary, if the BoJ fails to raise interest rates or provide a clearer stance, the Yen will find it difficult to maintain its upward momentum.
The USD/JPY exchange rate is expected to continue to fluctuate strongly, reflecting the impact of the two central banks. Investors should closely monitor developments from both the US and Japan, as these will be factors shaping global financial trends in the coming time.
