Lately, the Japanese Yen has finally been finding some footing against the US Dollar. Over the past two weeks,/JPY declined by over 2 percent. That was the worst 2-week period since June 2020. This has been in stark contrast with general Yen weakness going back all the way to the beginning of 2021. Is this near-term noise, or is more smooth sailing ahead for the Japanese currency?
The Yen’s strength is not unprecedented. In fact, it has been occurring amidst an increasingly favorable environment for the anti-risk currency. For starters, JPY has been receiving a bid amid rising market volatility. This has been leaving it in a very competitive position against theAgainst the US Dollar, it is a different fundamental story. Both the US Dollar and Japanese Yen exhibit anti-risk dynamics.
In the chart below, the markets have been materially pulling back 2023 Federal Reserve tightening expectations. This has been occurring amidst a deterioration in longer-term inflation expectations. Meanwhile, it seems we are starting to see thefor this year. Odds of a September 50-basis point rate hike have been fading amid rising growth concerns.
If this trend continues, it is reasonable to expect more USD/JPY weakness. However, key data this week could offer the US Dollar strength. These include the FOMC meeting minutes on Wednesday and PCE figures on Friday. The latter is the central bank’s preferred gauge of inflation, with the core reading expected at 4.9% y/y in April from 5.2% prior. The data is for the same period when
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