Ella 
USD/JPY extended gains to around 157.50 in early Asian trading on Monday. The Fed’s hawkish stance provided some support for USD/JPY. Meanwhile, the yen (JPY) was frustrated by the Bank of Japan’s (BoJ) decision to keep interest rates at 0% at its June policy meeting that ended last Friday.
The Fed kept interest rates unchanged at the current range of 5.25% to 5.5% at its most recent policy meeting last week, which was in line with market consensus. In addition, the Fed also adjusted its rate cut outlook to only one rate cut in 2024. Fed Chairman Jerome Powell said at a press conference that the central bank is not confident enough to cut rates yet and he needs more convincing evidence that inflation is moving towards its 2% target. Last Sunday, Minneapolis Fed President Neel Kashkari noted that it was a “reasonable prediction” that the Fed would wait until December to cut rates, adding that the Fed is in a very good position to get more data before making a rate decision.
Last Friday, the Michigan Consumer Sentiment Index for June fell to a seven-month low of 65.6 from the previous value of 69.1, below the expected 72.0. Nevertheless, the decline in the consumer confidence index had little impact on the dollar.
On the yen, the Bank of Japan kept its benchmark interest rate unchanged at 0% to 0.1% at a two-day policy meeting that ended last Friday, but said it may reduce the scale of Japanese government bond purchases after the next monetary policy meeting in July. Bank of Japan Governor Kazuo Ueda also said that the possibility of a rate hike in July is not ruled out as the weak yen pushes up import costs. “The Bank of Japan’s decision shows that the Bank of Japan is very cautious about reducing bond purchases, which means that the central bank is also cautious about raising interest rates,” said Takayuki Miyajima, senior economist at Sony Financial Group. This dovish stance of the Bank of Japan continues to weigh on the yen and has become a resistance to the rise of USD/JPY.
