The yen has seen significant strengthening over the past month, driven by a combination of weaker U.S. inflation data, strategic interventions by Japan, and evolving monetary policy expectations. The release of lower-than-expected inflation figures in the U.S. has fuelled optimism that the Federal Reserve may soon begin to cut rates, marking a pivotal shift in monetary policy. At the same time, Japan's proactive steps to bolster the yen, including direct intervention and rate hikes, have further supported the currency.
In this video, Lee Hardman, Senior Currency Analyst at MUFG, discusses how the narrowing policy divergence between the Bank of Japan (BOJ) and the Federal Reserve is expected to maintain this downward trend for the dollar-yen pair. While the Fed appears increasingly confident in its ability to cut rates, potentially as soon as September, the BOJ is poised to continue raising rates if financial market conditions in Japan stabilize.
Key points
- 00:18 - The unwind of yen-funded carry trades
- 01:53 - How have recent developments impacted your outlook for USD/JPY?
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