The USD/JPY pair continues to push higher despite intervention attempts by the authorities. The US Dollar is increasing in value as interest rates in the US diverge from the global trend, while weak Japanese wage data is hindering the Bank of Japan’s plan to raise interest rates to support the Yen. Currently, USD/JPY is trading up two-tenths of a percent in the 155.80s, indicating a bullish outlook for the pair.
The strength of the US Dollar is broad-based, with USD/JPY rising faster than the US Dollar Index (DXY) due to the Japanese Yen depreciating following the release of weak wage data from Japan. The lack of inflationary pressures in Japan makes it difficult for the Bank of Japan to raise interest rates to prop up the Yen, while the outlook for higher interest rates in the US due to strong economic activity supports a bullish stance for USD/JPY.
Federal Reserve officials are in favor of keeping interest rates higher for longer due to persistent high inflation, which supports the US Dollar. The relative story of central banks around the world shows a divergence from the Fed’s hawkish stance, further boosting the Greenback. The expectation of the Fed needing to maintain higher interest rates for a longer period is backed by a strong outlook for US economic growth, as real-time estimates suggest robust growth in Q2.
The Japanese Yen remains handicapped by weak economic data, with cash earnings data in March falling well below expectations. The data suggests very little wage pressure in Japan, making it difficult for the Bank of Japan to raise interest rates substantially. Without a combination of direct intervention and interest rate hikes, the Japanese authorities do not have the firepower to beat market forces, leading USD/JPY to continue rising.
In conclusion, the USD/JPY pair is expected to maintain its bullish momentum as market forces outweigh intervention attempts by the Bank of Japan. The US Dollar’s strength across the board, supported by the Fed’s hawkish stance and strong US economic growth, underscores a positive outlook for the pair. As long as the Japanese Yen remains hampered by weak data and the BoJ’s limited ability to raise interest rates, USD/JPY is likely to continue its upward trajectory.
