US Stock Recovery Holds Off Yen

The USD/JPY currency pair jumped up to a daily new high point in the early European session on Wednesday, and it is on a path of consolidating farther than the 128.00 benchmarks.

USD/JPY price chart. Source TradingView

It was a conglomeration of several events that aided the par to draw the much-needed purchases in the middle of the week, and it was then able to turn around a significant portion of the slide seen the previous day to a low point of one week. A strong recovery in the US stock futures did not encourage purchasing the Japanese Yen as a safe-haven asset, and the Yen further got pressured by the different routes in the policy outlook of the Bank of Japan and the US Federal Reserve. 

The latest barrage of hawkish comments from the leading members of the Federal Open Market Committee, as well as the Federal Reserve’s chairman, Jerome Powell, sends home the decision of the Federal Reserve that it is going to implement a tighter monetary policy. Consequently, the market is now expecting the Federal Reserve to increase the interest rates by up to 50 basis points at its next four consecutive policy meetings from May to July and then in September.

The possibility that there is going to be a faster pace of increasing interest rates, as well as an increase in the Treasury bonds of the US, has boosted the US dollar to the highest point it has been since the beginning of the COVID pandemic in the middle of March 2020. Whereas, in Japan, the Bank of Japan has again made an offer to purchase limitless amounts of bonds released by the Japanese government on Tuesday in order for it to have the 0.25% yield solidly in place.

More Stimulus Package from the BOJ

Importantly, the Bank of Japan maintains its position to use every tool at its disposal to ward off a rise in long-term interest rates and to maintain a very loose monetary policy to aid economic recovery. In addition to this, the Bank of Japan is expected to make an announcement of more stimulus packages to give a boost to aggregate demands.

Therefore, the focus of the market will now be on the Bank of Japan and its monetary policy direction, which is set to be made public in the course of Thursday’s Asian session. For now, the basic background is in favor of bullish traders.