- The yen weakened further, falling below 158 yen per dollar in Thursday trading, at risk of slipping further to its lowest in 34 years.
- Investors turned cautious ahead of Japanese inflation data for May on Friday, which could influence the Bank of Japan’s next policy move.
- USD/JPY gains today extended above the 158.20 resistance level.
Investors are looking ahead to June manufacturing and services PMI figures. Earlier this week, Bank of Japan Governor Kazuo Ueda told the Japanese parliament that they may raise rates again at the July meeting depending on upcoming economic data. He warned that rising import costs caused by a weak yen could negatively impact household spending, but added that rising wages could boost consumption.
Last week, the Bank of Japan left interest rates unchanged as widely expected and said it would announce a plan to taper its bond-buying program at its next policy meeting in July. Moreover, BOJ Governor Kazuo Ueda appears to have grown more confident about the inflation outlook based on his recent comments, according to a former BOJ executive who ended her term last month.
In this regard, former executive Tokiko Shimizu said on Wednesday in her first media interview since the end of her four-year term on May 10: “The words he chose or used were a bit surprising. I think they had some good discussions about monetary policy.” And at the policy meeting on the next move. There is such confidence – it should make him speak louder.
At his post-decision news conference Friday, Ueda was asked whether a July rate hike was possible even as the central bank plans to detail its quantitative easing plans at the same meeting. “Of course,” the governor replied, adding that it would depend on the data. Also, Shimizu noted that it was a bit unusual for Ueda to use a phrase that conveyed such certainty. Added, “At this point in time, we have slightly better numbers, especially on service inflation yesterday,”. “So that number probably makes them more confident about raising rates.” Shimizu added that she sees room for a rate hike this year.
Overall, market speculation about a July rate hike has cooled after the BOJ said it would wait until that meeting to unveil a detailed plan to reduce bond purchases. Combining the start of the QT period with a rate hike is too much at once, according to some BOJ watchers. Still, Ueda has repeatedly flagged the risk of a rate hike next month. The governor said Tuesday that since bond purchases are no longer a policy tool and are separate from interest rate setting, there is a “good chance” of rates rising from the current 0 to 0.1% setting if economic data allows.
Shimizu is known as a glass ceiling breaker after becoming the first woman to hold several senior management roles at the Bank of Japan, including branch manager in 2010. Also, she joined the bank in 1987. She was ranked 56th in Forbes’ ranking of the 100 most powerful women in the world. Last year, she was one of only three Japanese on the list.
USD/JPY Technical analysis and Expectations Today
The recent upward move in USD/JPY pair does not rule out a move towards the psychological resistance of 160.00. Meanwhile, the currency pair currently stabilized around the resistance of 158.50. The upside momentum factors remain unless there is an expected Japanese intervention in the forex markets to stop the currency from further collapsing.
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