USD/JPY Approaches 160.00 As Bank Of Japan May Delay Tapering

USD/JPY maintained its gains around 159.00 in Asian trading on Friday after six consecutive sessions of gains. USD/JPY is expected to extend its gains to a multi-year high around 160.00 as investors expect the Bank of Japan (BoJ) may further delay its plan to reduce its bond purchases after the July meeting.

At the latest monetary policy meeting, Bank of Japan Governor Kazuo Ueda said that policymakers decided to postpone the reduction of bond purchases and further interest rate hikes until the July meeting. Policymakers also expressed their concerns about inflation expectations as the weak yen makes Japanese exports more competitive in the global market, but also increases the cost of imports. The consequences of the weak yen may lead to high levels of inflation in the economy.

However, the national consumer price index (CPI) figures for May seemed to tell a different story. Core inflation, which excludes food and energy prices, fell to 2.1% from 2.4% in the previous period. The report showed that national inflation, excluding fresh food, slowed to 2.5% from the expected 2.6%, but was higher than the previous value of 2.2%.

Meanwhile, the U.S. dollar (USD) fell to 105.50 but was generally stronger as investors expect the Fed to lag behind other central banks in its attempt to move to a policy normalization process. Fed policymakers have already indicated that there will be only one rate cut this year, which will be announced in the last quarter. Contrary to the Fed’s latest rate forecasts, financial markets expect the Fed to cut rates twice, with the easing process starting at the September meeting.

Looking ahead, investors will focus on the U.S. S&P Global Purchasing Managers Index data for June, which will be released at 21:45 Beijing time. The composite PMI is expected to decline due to weakness in the manufacturing and services sectors.

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