USD/JPY Climbs to 147.50 as BoJ Rate Hike Expectations Ease, Focus Shifts to US Inflation

USD/JPY has risen to 147.50 as bets on a rate hike by the Bank of Japan (BoJ) diminish, with attention turning to US inflation.

The USD/JPY pair has rebounded to 147.50 after two days of consolidation during Tuesday’s European session. This increase comes as the Japanese Yen weakens, following doubts the Bank of Japan (BoJ) expressed about Japan’s economic outlook.

BoJ Governor Ueda stated during Tuesday’s Asian session that while the economy is showing signs of recovery in some areas, weak consumption remains a concern. Finance Minister Shunichi Suzuki mentioned that Japan has yet to reach a stage where it can declare victory over deflation. These remarks from BoJ Governor Ueda and Finance Minister Suzuki have dampened market expectations for the BoJ to move away from its hostile interest rate policy.

Expectations for the BoJ to shift its expansionary policy stance were higher before Governor Ueda’s comments, particularly after revised estimates for Japan’s Q4 Gross Domestic Product (GDP) showed that the economy did not enter a technical recession in the latter part of 2023. The revised estimates indicate a 0.1% growth, contrasting with the 0.1% contraction initially suggested.

Additionally, some BoJ policymakers have expressed optimism about a potential positive wage cycle, which could help sustain inflation above the desired 2% rate.

Meanwhile, market sentiment remains positive as investors await the release of the United States Consumer Price Index (CPI) data for February, scheduled for 12:30 GMT. This inflation data will offer fresh insights into the direction of US interest rates. Federal Reserve (Fed) policymakers closely monitor inflation trends, looking for sustained evidence of easing before considering any adjustments to interest rates.

USD/JPY