The Japanese Yen continues to draw support from the BoJ's hawkish interest rate hike on Friday. The divergent BoJ-Fed outlook and narrowing US-Japan yield differential favor the JPY bulls. Fed rate cut bets could act as a headwind for the buck and further cap gains for the USD/JPY pair.
The yen strengthened and Japanese government bond yields rose to fresh multi-year highs on Friday after the Bank of Japan hiked interest rates as expected and raised its inflation forecasts.
In a widely anticipated move, the Bank of Japan on Jan. 24 raised its short-term policy rate to 0.50% from 0.25%. Read more here.
A weaker yen is typically good for Japanese exporters but could push inflation higher because the country imports much of its energy and food. The Bank of Japankicked off a global market selloff last time it raised interest rates. The likely rate increase this week will be less dramatic, but the real suspense lies in what comes next for the yen.
The move comes in line with expectations from CNBC’s survey, where an overwhelming majority of economists predicted a hike.
The Bank of Japan has raised short-term interest rates by a quarter point, the highest in 17 years, signalling efforts to normalise monetary policy in response to persistent inflation and increasing wages.
The Bank of Japan hiked interest rates on Friday to their highest level in 17 years and signalled more were in the pipeline despite fears of turmoil under US President Donald Trump.
BoJ, Fed, and RBA policies dictate USD/JPY and AUD/USD paths. Global trade and China’s economy amplify forex market volatility.
The Mexican peso, a barometer of tariff worries, weakened 1.6% to 20.609 per dollar. The Canadian dollar was down 0.33% versus the greenback at 1.44 per dollar. Trump said last week he may impose duties on products from Canada and Mexico from Feb. 1.
The yen was the only Group-of-10 currency rising against the dollar on Monday as investors sought it as a haven on concern President Donald Trump’s orders to impose tariffs and sanctions on Colombia could spark wider trade tensions and economic risks.
The benchmark S&P 500 was down 1.6 per cent to 6,003.04, dragged down by technology stocks. AI chipmaker Nvidia was down nearly 14 per cent to $123.02