The USD/JPY pair experienced an upward movement during Thursday’s trading session, reaching 143.55, marking a 0.90% increase for the day. This rise is largely attributed to a rebound in the value of the US Dollar, following the Federal Reserve’s significant decision to lower interest rates for the first time in over four years. As investors remain focused on upcoming central bank meetings, the attention now shifts towards the Bank of Japan’s (BoJ) policy stance, which is expected to be revealed during Friday’s meeting.
In its latest review, the Federal Reserve slashed interest rates by 50 basis points, bringing the rate down to a range of 4.75% to 5.00%. During the subsequent press conference, it was indicated that while the decision was substantial, it was deemed necessary as inflation pressures diminish and concerns about the employment market increase. Additionally, Fed officials adjusted their GDP growth forecast for 2024 downward to 2%, while slightly raising the long-term projection for federal funds rate to 2.9%.
The US Dollar Index, which measures the dollar against a selection of major currencies, has also bounced back after hitting multi-month lows, reclaiming the 101.00 level with a modest gain of 0.20% on the day. Despite this, the dovish approach of the Federal Reserve and the anticipation of further rate reductions later in the year may exert downward pressure on the dollar, thereby capping the potential for further gains in the USD/JPY pair.
Concurrently, the BoJ is anticipated to maintain its current interest rates at the conclusion of its two-day meeting. However, a growing consensus among economists suggests that an increase may be on the horizon by the end of the year. The recent shift in the Fed’s monetary policy could lead to a narrowing of the interest rate differential between the US and Japan, potentially strengthening the Japanese Yen against its US counterpart.
