USD/JPY rose by 2.4% to 157.40 this week, adding to last week’s increase of 2.4%. Yesterday, the Bank of Japan’s “cautious hold” was no match for the Fed’s “cautious cut” on Wednesday. Despite the Fed’s 25 bps cut to 4.25-4.50%, the JPY’s negative interest rate differential against its US counterpart remained wide against the BOJ’s 0.25% target rate. Hence, USD/JPY is vulnerable to more upside risks towards 160 from expectations for both central banks to keep rates unchanged at their January meetings.
BOJ Governor Kazuo Ueda killed expectations for a rate hike at the January 24 meeting, an expectation fuelled by last week’s rare announcement for a speech and press conference by Deputy Governor Ryozo Himino on January 14 to communicate the central bank’s thoughts on monetary policy. Ueda wanted more reassurance about wage hike sustainability by the March or April meeting and more time to assess the impact of Trump’s fiscal and trade policies. Although Japan is expected to report an increase in November’s National CPI ex Food inflation to 2.6% YoY from 2.3% a month earlier, Ueda noted that import price inflation had turned negative despite the JPY’s depreciation.
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