The Japanese yen weakened past 154 per dollar, hitting its lowest level in over a week, as hotter-than-expected US consumer inflation data led traders to scale back expectations for further Federal Reserve interest rate cuts.
Japanese yen weakens below 154 per dollar
Markets are now pricing in only one quarter-point Fed rate cut this year, with Fed Chair Jerome Powell stating before Congress that the central bank is in no rush to ease policy. Higher US yields have widened the interest rate differential between the Federal Reserve and the Bank of Japan, exerting further downward pressure on the yen.
BoJ Governor provides no clear guidance
Meanwhile, Bank of Japan Governor Kazuo Ueda provided no clear guidance on the future path of interest rates. In a parliamentary session, Ueda reiterated that the BOJ would maintain its ultra-loose monetary policy until inflation stabilizes at 2% in a sustainable manner. However, growing divisions within the central bank have fueled speculation about future policy shifts. BOJ board member Naoki Tamura suggested last week that the central bank may need to raise its policy rate to at least 1% in the latter half of fiscal 2025 to ensure stable inflation and prevent excessive yen weakness.
Japan government closely monitors currency movements
Japan’s government has also been closely monitoring currency movements, with Finance Minister Shunichi Suzuki reaffirming that authorities are prepared to take "appropriate action" if volatility becomes excessive. Market participants remain alert for any signs of intervention by Japanese policymakers, particularly as the yen approaches multi-decade lows. Investors will be closely watching upcoming economic data and central bank commentary for further clues on the timing of Japan’s potential policy shift.
