The USD/JPY exchange rate has shown signs of recovery, bouncing back to approximately 140.80 during the early trading session in Asia on Tuesday. This uptick marks a halt to the currency pair’s five-day decline. However, upward momentum may be constrained as anticipation mounts regarding potential interest rate cuts by the U.S. Federal Reserve at its upcoming meeting on Wednesday. Market focus will be keenly trained on the monetary policy discussions from both the Federal Reserve and the Bank of Japan later this week.
The US Dollar continues to face downward pressure due to heightened expectations surrounding the Fed’s easing plans. Recent comments from the Fed Chair have indicated that inflation is stabilizing, allowing the central bank to contemplate adjusting its monetary policy. The current state of the job market adds another layer of complexity, as it remains fragile and plays a significant role in the Fed’s decision-making process.
As the market prepares for the Fed meeting, the likelihood of a substantial 50 basis points cut has surged, with probabilities now estimated at around 67%, up from 50% just days ago. Prior to this critical interest rate decision, the US Census Bureau is set to publish its Retail Sales report, anticipated to reflect a modest increase of 0.2% month-over-month for August, compared to a more robust growth of 1.0% previously reported.
In contrast, the Bank of Japan is not expected to alter its interest rates during its forthcoming meeting on Friday. Despite this, a majority of economists surveyed still foresee the possibility of a rate increase by the end of the year. Analysts note that the key influence on the Japanese yen remains the disparity in interest rates between the U.S. and Japan, with the Federal Reserve’s actions playing a pivotal role in shaping market sentiments.
