On Tuesday (May 14), the US dollar rose above 156 against the yen, but the International Monetary Fund (IMF) forecasts that the Bank of Japan should continue to raise interest rates in the short term and depends on the data. Japan's Finance Minister Shunichi Suzuki said that stable currency fluctuations reflecting fundamentals are very important, and further emphasized that it will keep a close eye on foreign exchange trends.
The Bank of Japan sent a hawkish signal on Monday, reducing the amount of Japanese government bonds (JGB) it has purchased in regular buying operations. The move is expected to put upward pressure on Japanese bond yields and may reduce the spread between Japan and the US, thereby weakening the yen.
However, the recent trend has been moderate and has had little impact on the yen. On the Japanese side, the country's gross domestic product (GDP) growth data for the first quarter of 2024 will be released on Thursday (May 16 at 07:50 Beijing time). Stronger data is likely to boost the yen and limit the upside of the USD/JPY exchange rate in the short term.
The IMF mentioned that Japan promised to allow the yen to fluctuate flexibly, which would allow the Bank of Japan to focus on stabilizing prices while warning against calls from some experts to use monetary policy to limit currency depreciation.
“Further increases in Japan's short-term policy interest rate should be carried out gradually and depend on data.”
“Highlighting Japan's long-term commitment to a flexible exchange rate system will help absorb shocks and support monetary policy's focus on price stability.”
“The Bank of Japan's purchase of Japanese treasury bonds according to national conditions will help mitigate excessive changes in yield, which may disrupt financial stability during policy transitions.”
“The Bank of Japan's clear and effective communication strategy will continue to emphasize the factors behind the pace of interest rate hikes, which will be the key.”
“Stable currency fluctuations and reflecting fundamentals are very important,” said Shunichi Suzuki.
“Coordination of policies is critical for the government and the Bank of Japan.”
“A thorough response to foreign exchange will be taken.”
“Keep a close eye on foreign exchange trends.”
Investors will get more clues from this week's major US economic data, including the Producer Price Index (PPI), Consumer Price Index (CPI), and retail sales. These reports will provide some hints as to whether inflation remains stubborn, whether it has declined, or even intensified.
The US PPI data for April will be released later on Tuesday, and it is expected to rise 2.2% year-on-year in April. The core PPI, which excludes energy and food costs, is expected to grow 2.4% year over year. Traders are likely to use PPI reports to measure potential CPI results, while higher-than-expected data is likely to continue to boost USD/JPY.
USD/JPY daily chart
At 13:18 Beijing time on May 14, USD/JPY reported 156.40