Ella 
On Tuesday, the US dollar to yen exchange rate saw minor fluctuations, trading around 151.36. Japanese Finance Minister Shunichi Suzuki indicated a readiness to address disorderly foreign exchange fluctuations. However, the USD/JPY dipped momentarily to approximately 151.21 before stabilizing. Analysts observed that despite Japan’s shift from ultra-loose to tighter monetary policy, the threat of intervention persists, yet catalysts for a substantial drop in the USD/JPY rate below 150 remain elusive.
Minister Suzuki emphasized the importance of stable currency fluctuations reflecting economic fundamentals. He expressed vigilance in monitoring foreign exchange trends and didn’t rule out intervention to address disorderly fluctuations. These statements echoed concerns raised by Japan’s top foreign exchange official, Masato Kanda, regarding excessive volatility.
The potential for intervention arises from anticipated disparities in the Bank of Japan’s interest rate trajectory. Despite Japan’s recent interest rate hike after 17 years, the USD/JPY rate remains below 152. Bank of Japan Governor Kazuo Ueda suggested that loose monetary policy would persist post-negative interest rates until wage increases translate into demand-driven inflation.
Given the prevailing zero interest rate spread, the dollar maintains an advantage, reinforced by carry trades favoring USD/JPY appreciation. In carry trades, investors borrow yen at lower rates to invest in dollars yielding higher returns, facilitated by leverage.
However, a more aggressive interest rate path by the Bank of Japan could strengthen the yen significantly, potentially offsetting inflationary pressures from exiting negative rates. This scenario could dampen demand-driven inflation by increasing the yen’s purchasing power.
The market anticipates upcoming inflation data on Friday in Japan, while US core durable goods orders and consumer confidence data hold significance. A positive trend in consumer confidence could bolster consumer spending, impacting inflation and influencing Federal Reserve policy decisions.
Economists expect US core durable goods orders to rise by 0.4%, following a 0.3% decline in January. Additionally, the CB consumer confidence index is predicted to remain at 106.7 in March.
Aside from economic indicators, investors monitor Federal Reserve comments and deviations from the Federal Open Market Committee’s (FOMC) forecasts. These factors, along with short-term trends, central bank interventions, and inflation data, will dictate the near-term outlook for USD/JPY. While Japan’s wage increases have yet to impact inflation, ongoing US economic resilience heightens the Fed’s sensitivity to inflationary pressures.
