Since last week’s Bank of Japan policy decision, the USD/JPY exchange rate has been on an upward trajectory. After the Nikkei reported discussions about YCC (Yield Curve Control) revisions in overseas markets on the previous Friday, the yen reacted with appreciation. However, during the actual policy meeting, the Bank of Japan announced fixed-rate bond purchases at 1%, causing the USD/JPY to fluctuate within a 3-yen range before eventually moving in favor of a weaker yen. Furthermore, the Bank of Japan conducted a “temporary” operation when long-term yields exceeded 0.6%, which emphasized to the market that the YCC flexibility measure was within the framework of continued easing. This series of events has led to prevailing downward pressure on the yen.
However, it is still uncertain whether the market’s view has solidified. The YCC flexibility measure seems to be a tactic of buying time, a familiar strategy employed by the Bank of Japan. The key factor going forward will be the inflation trends in Japan.
Additionally, this week will see the release of US employment data on Friday. During the last release on July 7th, the USD began to weaken as the non-farm payrolls increase fell below expectations. With the upcoming release of critical US economic indicators, the momentum of yen depreciation might taper off. Looking further ahead, on August 10th, the US Consumer Price Index (CPI) is also scheduled to be announced. The memory of the sharp decline from +4.0% to +3.0% in the year-on-year growth rate is still fresh. The market is also paying close attention to the extent of slowdown this time. The USD/JPY exchange rate is expected to be significantly influenced by the US dollar’s movements in the future.
Today, after ISM Manufacturing PMI data release, if there is a clear trend in the USD, the plan is to follow that direction.
