Yen Strengthens, Markets Increasingly Confident of BOJ Interest Rate Hike
The USD/JPY pair weakened again for a second consecutive day on Friday in Asia, dropping to the 155.65 area following the release of Tokyo inflation data. However, the weekly movement still showed a positive trend for the second consecutive week, so the market is considered cautious before taking large positions for a continued correction from the two-week high reached on Wednesday.
Recent data showed Tokyo's core inflation, a closely watched indicator, fell below the Bank of Japan's (BOJ) 2% target for the first time since 2024. However, inflation remains above the historical average, and combined with more hawkish remarks from BOJ officials, this maintains market expectations that the BOJ still has room to gradually tighten policy. BOJ Governor Kazuo Ueda reiterated that his basic stance is to maintain interest rate hikes if the likelihood of economic and inflation projections improving is met. BOJ Board member Hajime Takata also stated that further rate hikes need to be gradual.
On the other hand, several factors are holding back the yen's overly aggressive strengthening. Several reports indicate that Japanese Prime Minister Sanae Takaichi expressed caution regarding additional tightening in her meeting with the BOJ governor. Concerns about Japan's fiscal health are also considered to limit buying space for the yen. Meanwhile, the US dollar remains near its monthly high, so the USD/JPY decline could be hampered.
In the United States, the dollar received support after markets reduced expectations for a Fed interest rate cut. The minutes of the January FOMC meeting indicated the central bank was in no rush to cut interest rates, even discussing the possibility of a rate hike if inflation did not cool. This stance cushioned pressure from concerns about the impact of President Donald Trump's policies on the economy, while keeping the USD relatively strong.
Next, market focus turns to the release of the US Producer Price Index (PPI) in the North American session. Furthermore, comments from influential FOMC officials also have the potential to drive dollar demand and influence USD/JPY direction. With fundamentals still in flux, with the BOJ tending to be hawkish on one hand, while the USD remains solid on the other, the market believes further declines in this pair are likely to be bought on dips as long as there are no major surprises from US data. (asd)
Source: Newsmaker.id
