Yen Hits 7-Month Low Against Dollar as US Federal Reserve Chairman Suggests Interest Rate Hike
On the 22nd, the dollar/yen exchange rate in the Tokyo foreign exchange market reached the upper 141 yen range to the dollar. Overseas markets saw Chairman Powell of the US Federal Reserve (FRB) hinting at an additional interest rate hike. This, coupled with the monetary policy gap between the US and Japan, led to the yen temporarily dropping to the low 142 yen range, the lowest since November last year. As a result, the dollar index has fallen and the rise in US interest rates has been suppressed, putting pressure on the dollar/yen pair.
As of 8:31 a.m., the dollar/yen exchange rate stood at 141.72 yen, down 0.1% from the previous day. Yukio Ishizuki, senior currency strategist at Daiwa Securities, commented on the situation, stating, “Chairman Powell hinted at further interest rate hikes, but the outlook for US interest rates has changed little since the congressional testimony.” He further explained that although the dollar/yen exchange rate briefly reached a new high, the overall weakening of the dollar and fears of intervention have hindered further gains, causing the pair to lose its sense of direction.
During his congressional testimony to the US House of Representatives, Fed Chairman Jerome Powell emphasized the need for interest rates to rise in order to contain price pressures. However, he also mentioned that the timing of further rate hikes would depend on incoming data and the Federal Open Market Committee’s (FOMC) dot chart, which indicates the committee’s projections for future interest rates. This situation is expected to continue.
In the US Treasury market on the same day, the two-year bond yield, which is sensitive to monetary policy, increased by 3 basis points (bp) from the previous day to around 4.72%. Meanwhile, the 10-year bond yield remained relatively flat at around 3.72%. In the interest rate swap market, the probability of a 25 basis point rate hike in July has remained above 70%.
Regarding foreign exchange intervention by the Japanese financial authorities, Mr. Ishizuki raised concerns about whether the United States would understand and support interventions aimed at selling dollars and buying yen, especially at a time when the dollar is declining. He emphasized that the current situation is characterized by the yen depreciating rather than the dollar strengthening, and Japan should consider its monetary policy accordingly.
Ahead of the Bank of England’s policy interest rate announcement on the 22nd, the pound/yen exchange rate remained stable at around 181 yen to 1 pound. The euro/yen exchange rate temporarily reached 1 euro = 155.92 yen during international trading, marking the highest level since September 2008. This is attributed to the European Central Bank (ECB) showing its willingness to continue raising interest rates, resulting in a strong euro and weak yen trend.
In conclusion, the yen has hit a 7-month low against the dollar due to Chairman Powell’s remarks on potential interest rate hikes and the disparity in monetary policies between the US and Japan. The dollar/yen pair has been affected by the overall weakening of the dollar and concerns about intervention. The situation remains uncertain, and market participants are closely monitoring the developments in US interest rates and foreign exchange interventions.
What role has the widening gap between US and Japanese monetary policies played in the decline of the yen and the strengthening of the dollar
Tee’s assessment of the economy. Powell’s remarks were seen as a signal that the Fed may continue to raise interest rates, which has contributed to the weakening of the yen against the dollar.
The yen’s decline is also due to the widening gap between monetary policies in the US and Japan. The US has been steadily raising interest rates, while Japan maintains its ultra-loose monetary policy. This divergence in policy has made the dollar a more attractive investment, putting downward pressure on the yen.
The yen’s drop to a seven-month low has had an impact on the dollar index, which measures the value of the dollar against a basket of major currencies. The dollar index has fallen as a result of the decline in the yen, making it more difficult for the US to raise interest rates.
Despite the yen’s decline, experts believe that further gains in the dollar/yen pair may be limited. The overall weakening of the dollar and concerns about intervention by Japanese authorities have prevented the pair from gaining momentum.
In summary, the yen has reached a seven-month low against the dollar due to hints from the US Federal Reserve Chairman Jerome Powell about further interest rate hikes. The widening gap between US and Japanese monetary policies has also contributed to the yen’s decline. However, the overall weakening of the dollar and fears of intervention have limited further gains in the dollar/yen pair.
It seems like the Dollar/Yen exchange rate is taking a hit following Powell’s indication of an interest rate hike. Investors should keep a close eye on this development as it may have significant implications for the global economic landscape.
This article highlights the decline in the Dollar/Yen exchange rate following Powell’s indication of an interest rate hike. It will be interesting to see how this impacts global financial markets and trade between the two countries.