The Japanese yen may lose ground | 17 June 2024

USDJPY:

The USD/JPY pair continues to rally near 157.50 in the early Asian session on Monday. The hawkish stance of the US Federal Reserve (Fed) is providing some support to the pair. Meanwhile, the Japanese Yen (JPY) is losing ground as the Bank of Japan (BoJ) decided to keep the interest rate at 0% following its June meeting on Friday.

The Fed left interest rates unchanged in the current range of 5.25% to 5.5% at its last meeting last week, as widely expected. In addition, the Fed revised its forecast for a rate cut to one in 2024. Fed Chairman Jerome Powell said at a press conference that the central bank doesn't yet have the confidence to cut rates and needs more convincing evidence that inflation is moving toward the 2% target. On Sunday, Minneapolis FRB President Neel Kashkari said the "reasonable forecast" is that the Fed will wait to cut interest rates until December, adding that the Fed is in a very good position to get more data before making any decisions.

On Friday, the preliminary report on the Michigan Consumer Sentiment Index, a monthly survey of U.S. consumer confidence, fell to a 7-month low in June at 65.6 from 69.1 in the previous reading, below the forecast of 72.0. Nevertheless, the low consumer confidence data had little impact on the dollar.

As for the yen, the Bank of Japan left the benchmark interest rate unchanged in a range of 0% to 0.1% at the end of its two-day meeting on Friday, but indicated that it may reduce its purchases of Japanese government bonds after its next monetary policy meeting in July. Bank of Japan Governor Kazuo Ueda also said he did not rule out raising interest rates in July as the weakening Japanese yen (JPY) drives up the cost of imports. "The decision suggests that the BOJ is very cautious about reducing bond purchases, which means the central bank is also cautious about raising rates," said Takayuki Miyajima, senior economist at Sony Financial Group. This dovish stance of the BoJ continues to undermine the Japanese Yen and acts as a tailwind for the USD/JPY pair.

Trading recommendation: Trade mainly with Buy orders from the current price level

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