USDJPY to keep rising towards an over two-decade high at 135.15 due to diverging monetary policies by the Federal Reserve System (Fed) and the Bank of Japan (BOJ) on their respective currencies. At the moment, the price has risen to 131.26.
Opposing FED and BOJ Policies
The Federal Reserve System and the Bank of Japan have opted for diverging monetary policies. This comes as different nations do what seems best for their economies to recover from the blow of the pandemic.
The BOJ, for its part, reaffirmed its commitment again in its latest policy meeting to maintain its loose monetary policy to boost the economy. The BOJ’s governor, Haruhiko Kuroda, insisted that rates would remain unchanged and, instead, the focus would be on asset buying.
The Federal Reserve System, however, has opted for a financial policy that is opposed to that of the BOJ. Its report states that the bank has concluded that it will increase its rate to the highest in over two decades. It also states that interest rates will keep increasing by 50bps in future meetings.
In addition, the Fed also stated that it is considering a tight monetary policy, which will mean that its total balance sheet will be reduced.
As the week started, the statistics agency of Japan reported that the real wages of the country have been reduced in the past 2 months due to the abrupt increase in inflation over the past 3 years. The inflation caused real wages to decline by 0.2%, its first since December.
Despite the seeming abrupt increase in inflation in Japan, its rate is still very small compared to several countries.
Another event that could trigger the USDJPY to keep rising is the US inflation data, which should come in late in the week. Economists predict that the US CPI will fall to 8.1% and inflation will fall to 6.0%.
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