USD/JPY Remains Below 160.50 After Retreating From 38-Year High

USD/JPY was trading around 160.40 in Asia on Thursday after retreating from 160.87, the highest level since 1986. The downward correction could be due to verbal intervention by Japanese authorities.

Japanese Finance Minister Shunichi Suzuki said on Wednesday that he “will take appropriate measures against excessive foreign exchange fluctuations.” Suzuki did not comment on specific foreign exchange levels or potential intervention measures, but stressed the importance of currencies fluctuating in a stable manner that reflects fundamentals. Chief Cabinet Secretary Yoshimasa Hayashi also expressed similar views to the finance minister.

The depreciation of the US dollar (USD) could be due to traders’ expectations for Friday’s core PCE price index inflation rate, which is expected to fall to 2.6% from 2.8% previously. The data is considered the preferred inflation indicator of the Federal Reserve (Fed). Market participants hope that signs of slowing inflation will encourage the Federal Reserve (Fed) to consider rate cuts sooner rather than later.

However, the downside for the US dollar may be limited due to higher US Treasury yields. As of press time, the 2-year and 10-year Treasury yields were 4.74% and 4.33%, respectively.

Reuters quoted Federal Reserve Governor Michelle Bowman on Tuesday as saying that keeping the policy rate stable for a period of time may be enough to control inflation. Meanwhile, Federal Reserve Governor Lisa Cook said that given the significant progress in inflation and the cooling of the labor market, it would be appropriate to cut interest rates “at some point,” but she remained vague about the timing of easing policy.

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