USD/JPY: prospects for the dollar and yen


In the middle of this month, USD/JPY broke a multi-year high and 135.19 mark, reached in January 2002, and today the pair continues to develop upward momentum.


Some economists believe that the trend could reverse, or a significant correction, if there is evidence of a sharp slowdown in the US economy, which could force the Fed to moderate its policy hawkishness or even stop raising interest rates altogether.

In the meantime, "the economy is strong", New York Fed President John Williams said yesterday, and the Fed "needs to raise rates quite a bit this year and next".

Today, market participants will follow the speeches of the head of the Fed Powell, the head of the ECB Lagarde and the head of the Bank of England Bailey at the annual ECB forum on central banking, as well as the publication (12:30 GMT) of important macro data from the US, including the PCE price index for personal consumption for the 1st quarter and final release of annual US GDP, also for the 1st quarter of 2022.

Strong PCE figures are expected and a decline in US GDP by -1.5% (the 1st estimate was -1.4%, the second -1.5%, and the previous values ​​​​of the indicator +6.9%, +2.3%, + 6.7%, +6.3% (in Q1 2021)). The level of influence of GDP data on the markets is high, however, the final release has less impact, especially if it coincides with the forecast. The pre-release is the earliest and has the most impact on the market.

In anticipation of further steps from the Fed to tighten its monetary policy, the dollar continues to strengthen. So, at the time of publication of this article, DXY futures are traded near the 104.30 mark, maintaining positive dynamics and moving towards the recent local maximum of 105.56. Its breakdown could drive the DXY further up towards multi-year record highs of 121.29 and 129.05, hit in June 2001 and November 1985, respectively.

DXY Chart

But even if the dollar index does not reach these levels, its dynamics will still be characterized as bullish for the time being, and the USD/JPY pair will retain the potential for further growth. Here, the main driver of the positive dynamics of USD/JPY is the difference in the approach to determining the parameters of the monetary policies of the Fed and the Bank of Japan. While the Fed is taking a tough approach, the Bank of Japan continues to stick to extra loose monetary policy. As deputy central bank governor Masayoshi Amamiya said last Friday, the Bank of Japan will maintain an easing monetary policy to support the economy, and as part of a discussion held in Basel on June 26, the head of the Bank of Japan, Haruhiko Kuroda, noted that "unlike other economies, the Japanese economy has not been hit hard by the global inflationary trend, so monetary policy will continue to be stimulating".