Ella 
On Monday, the Japanese Yen (JPY) saw a decline against the US Dollar (USD) as risk aversion rose following the attempted assassination of former US President Donald Trump. Analysts suggest that this event could bolster ‘Trump-victory trades,’ potentially strengthening the USD and steepening the US Treasury yield curve, according to a Reuters report.
Market Dynamics
USD Strength: The USD strengthened on Monday amidst rising risk aversion triggered by political uncertainties in the US.
Yen Volatility: The JPY faced potential volatility amid speculation of intervention by Japanese authorities. Recent data from the Bank of Japan (BoJ) indicated significant intervention efforts last week, amounting to ¥3.37 trillion to ¥3.57 trillion, aimed at stabilizing the JPY’s rapid depreciation, as reported by Reuters.
Recent Trends: The JPY had rallied from near 38-year lows starting Thursday, buoyed by USD weakness following moderate US consumer price data for June. This data has increased market expectations of a Federal Reserve interest rate cut, potentially as early as September.
Federal Reserve Expectations
Recent developments have heightened expectations of a Fed rate cut:
FedWatch Tool: CME Group’s FedWatch Tool indicates an 88.1% probability of a 25-basis point rate cut at the September Fed meeting, up from 72.2% a week earlier. This reflects growing market sentiment towards monetary easing by the Federal Reserve.
Conclusion
The outlook for the JPY remains influenced by geopolitical developments, particularly in the US, and market expectations regarding Federal Reserve policy shifts. Investors are keenly awaiting Fed Chairman Powell’s upcoming speeches for further guidance on monetary policy, which could further impact the USD and JPY exchange dynamics.
