USD/JPY Rises as Markets Increase Speculation of a More Hawkish Fed
USD/JPY extended its gains for a sixth day and traded around 158.90 during the Asian session on Monday (May 18). The yen weakened as the US dollar strengthened as markets assessed that the Fed could become more aggressive in combating inflation.
Several Fed officials emphasized that controlling inflation remains a priority, including opening up the possibility of further interest rate hikes if price pressures persist. Markets have also raised expectations for a December rate hike, with CME FedWatch indicating a probability of around 48%, up from 14% a week ago.
The dollar also received support from demand for safe-haven assets amid geopolitical uncertainty. The US and Iran are said to be far from an agreement to end the conflict and reopen the Strait of Hormuz shipping lane, while Trump's warnings against Iran have added to tensions and kept oil prices high.
In Japan, inflationary pressures from the cost side are also a concern. Stronger-than-expected producer inflation data raised speculation that the Bank of Japan will begin raising interest rates from very low levels, and BOJ board member Kazuyuki Masu pushed for a rate hike "as soon as possible" due to perceived persistent inflation risks.
However, some analysts believe the impact of the energy shock on Japan's growth is still limited compared to its impact on inflation. ING's projections see the Japanese economy growing around 0.3% quarter-on-quarter in the first quarter, while April inflation is estimated at 1.8% year-on-year, helped by subsidies that restrain broader price increases. (asd)
Source: Newsmaker.id
