USD/JPY Get Slight Rebound

The USD/JPY currency pair tried to gain some pips back on recovery from its daily low and it was observed to trade with average losses on Wednesday. This was close to the 129.25 area in the course of the early European session.

Investors are still worried over the decision of major central banks to embark on aggressive policies to fight inflation in their respective domains. They are also worried that the war in Ukraine, as well as China’s COVID restrictions, might do more damage to the economy across the board.

USD/JPY price chart. Source TradingView

These worries have consequently caused a new drop in the stock markets and it is currently serving the interest of the Japanese Yen as a safe-haven commodity. As expected, the worries are, by extension, applying pressure downward on the USD/JPY currency pair.  But a number of factors came together to cut down on the losses the pair could have incurred, at least for now.

The Markets Win on Bets

It looks like the market is convinced that the Federal Reserve would go ahead with its plan to tighten the monetary policy for the next couple of months in order to fight high inflation rates. The speculations were confirmed by the Chairman of the Federal Reserve, Jerome Powell, whose hawkish comments came on Tuesday that he supports interest rate increases till commodity prices fall back to healthy levels.

The confirmatory statement boosted the Treasury bond yield of the US to higher levels. The development revived demands for the US Dollar as a safe-haven asset and also aided the USD/JPY to turn around its initial fall to levels under 129.00.

On the other hand, the Bank of Japan keeps on track with its promise of a very loose monetary policy. The bank also promises to keep buying unlimited amounts of bonds to keep its near-zero ten-year yields target in place. 

The wide divergence between the policies of the Federal Reserve and the Bank of Japan’s monetary policies gives support to the possibility of short-term appreciation in the move of the USD/JPY pair. It looks like bullish traders are reluctant to bet aggressively, thereby indicating that the price of spots might form a short-term top near the 131.35 area.

Market players are currently looking ahead to the housing market report and building permits from the United States. These are going to give them some momentum later in the course of the North American session.

Aside from those, the bond yields from the US Treasury are set to influence the US Dollar and its price dynamics. Traders would then be able to take cues from the general risk in the market to take trading opportunities close to the USD/JPY currency pair.