On Wednesday, the USD/JPY pair continues its strong upward momentum, building on the previous day’s spectacular rise and gaining significant follow-through impetus. During the first half of the European session, the pair reaches a new high point not seen in the previous 24 years; it is now trading barely over the 144.00 middle point.
The sharp decline in the value of the Japanese yen continues to be a primary topic of discussion among market participants, notwithstanding the significant gap that exists between the monetary policy stance taken by the Bank of Japan and those of other major central banks. It is important to point out that the Bank of Japan has been falling behind in the process of normalizing its monetary policy and is still committed to continue with its easy monetary policy. This, in addition to a minor rebound in equities markets, weighs hard on the safe-haven JPY, which continues to drive the USD/JPY pair higher as a result of the trend.
Traders who were bullish on the market also drew cues from the Bank of Japan’s announcement that it would increase the amount of bonds it would purchase at its regular operations from 500 billion to 550 billion yen in order to maintain the benchmark 10-year yield below the maximum limit of 0.25%. In the meanwhile, purchasing throughout the day shows little sign of slowing down, in spite of the most recent verbal caution given by policymakers to avoid a rapid drop in the value of the yen.
In point of fact, Chief Cabinet Secretary Hirokazu Matsuno expressed his worry to the press about the recent quick and one-sided fluctuations in the currency market. He said that the government would want to take the required actions should these movements persist.
Aside from this, the strong positive mood that is surrounding the US dollar is what is lifting the USD/JPY pair to its highest level since August of 1998. The strength of the U.S. dollar may be attributed to the strengthening of market participants’ conviction that the Federal Reserve would maintain its aggressive policy tightening course.
In point of fact, the financial markets are pricing in a massive rate rise of 75 basis points at the FOMC meeting in September, and these bets were supported by the positive US ISM Services PMI that was released on Tuesday. Having said that, the possibility exists that any additional advances for the greenback and the USD/JPY pair would be capped by a little retreat in the rates on US Treasury bonds.
On Wednesday, there is no significant economic data that is expected to be released from the United States that is likely to move the market. As a result, all eyes will be on the remarks that Fed officials are scheduled to make later on during the early North American trading day. Together with the yields on US bonds, this will have an impact on the price dynamics of the USD and will provide some momentum to the USD/JPY pair. Aside from this, traders could take cues from the general mood about risk in order to seize chances in the near term. In spite of this, the basic environment lends credence to the possibility of future advances.