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by The Japanese yen recently weakened past $157 (USD/JPY), approaching its lowest monthly level. This decline is due to a rebound in risk assets and a drop in global bond yields, which reduced the yen’s appeal as a haven.
A significant interest rate gap between the US and Japan kept the yen under pressure. Investors find the carry trade, where they borrow in yen to invest in higher-yielding assets elsewhere, desirable.
USDJPY Fundamental Analysis – 3-June-2024
BOJ Hints at Potential Rate Hike Amid Yen Fall
Last week, Bank of Japan board member Seiji Adachi hinted that the central bank might raise interest rates if a sharp decline in the yen fuels further inflation. Similarly, BOJ Deputy Governor Shinichi Uchida expressed optimism that Japan is nearing the end of its deflation battle, with wages expected to continue rising.
Tokyo Inflation Nears BOJ Target
Recent data supports this outlook. Tokyo’s core inflation rate increased to 1.9% in May from 1.6% in April, remaining just below the BOJ’s 2% target. These developments suggest that while inflation is edging closer to the bank’s goal, ongoing economic adjustments and policy responses will be crucial in stabilizing the yen and managing inflation expectations. Investors and policymakers alike should stay informed to navigate these economic shifts effectively.
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