"This price behaviour reflects a tug-of-war between two opposing forces: on one hand, Japan has officially entered a rate-hiking phase following a prolonged period of ultra-loose monetary policy, and on the other hand, the U.S. dollar continues to be supported by a relatively high interest-rate environment in the United States. The fact that the pair has yet to establish a clear downward trend suggests that policy shifts from Japan, while structurally significant, have not yet been strong enough to reverse the short-term macroeconomic balance."
"In recent months, the Bank of Japan (BoJ) has implemented historically significant adjustments. The BoJ has raised its policy rate to 0.75%, the highest level in nearly three decades, and has continued to signal that further rate hikes remain possible should inflation and wage growth stay on track. Notably, according to Reuters, Japan's money supply has declined for the first time in approximately 18 years, with the monetary base falling by around 4.9% year-on-year, marking a clear departure from decades of ultra-accommodative monetary policy."
USD/JPY trades within a narrow range around 156–157, reflecting competing monetary forces. The Bank of Japan has shifted to a rate-hiking stance, raising its policy rate to 0.75% and signaling further hikes if inflation and wages progress. Japan's monetary base has fallen about 4.9% year-on-year, the first decline in roughly 18 years, indicating a structural policy pivot. Despite these changes, the U.S. effective federal funds rate near 3.64% preserves a wide interest-rate differential. The differential sustains carry-trade attractiveness and keeps structural selling pressure on the yen, preventing a sustained JPY recovery against the dollar.
Read at London Business News | Londonlovesbusiness.com
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