Anna 
The USD/JPY currency pair has witnessed a partial recovery from intraday losses on Friday, bolstered by an improved US Dollar (USD) performance amid weaker US Treasury yields. Despite this upward correction, the pair remains ensconced in negative territory, sustaining a four-day losing streak and currently trading around 147.90 during the European trading hours.
As of the latest update, the US Dollar has depreciated by approximately 1.50% against the Japanese Yen for the week. This downturn can be attributed to the prevailing positive sentiment surrounding expectations that the Federal Reserve (Fed) might initiate a rate-cut cycle commencing in June. The CME FedWatch Tool underscores this sentiment, indicating a 56.7% probability of a 25 basis point rate cut in June. Additionally, Federal Reserve Chair Jerome Powell alluded to the possibility of interest rate cuts occurring sometime within this year during his second day of testimony before the US Congress.
Adding to the narrative, Cleveland Fed President Loretta Mester expressed apprehension at the Virtual European Economics and Financial Center. She cited concerns about the potential persistence of inflation throughout the year and hinted at the likelihood of rate cuts later in 2024, contingent upon economic conditions aligning with forecasts.
The Japanese Yen (JPY) has experienced an upswing in response to growing speculation that the Bank of Japan (BoJ) may deviate from its ultra-loose monetary policy stance, consequently exerting downward pressure on the USD/JPY pair. BoJ Governor Kazuo Ueda asserted that it is “fully possible to seek an exit from stimulus while striving to achieve the 2% inflation target.”
Governor Ueda further indicated that the extent of rate hikes would hinge on prevailing circumstances, particularly if negative rates are lifted. BoJ policy board member Junko Nakagawa echoed these sentiments, highlighting that the likelihood of achieving the 2% inflation target sustainably is gradually improving.
In economic indicators, January witnessed Japan’s non-seasonally adjusted Current Account Surplus decline to ¥438.2B, down from the previous figure of ¥744.3B. Despite this contraction, the surplus surpassed expectations, reaching ¥330.4B, potentially offering support for the Japanese Yen. Meanwhile, market participants eagerly await US employment data, including Average Hourly Earnings and Nonfarm Payrolls, to gain further insights into the economic situation in the United States.
