U.S. Dollar Strengthens Against Japanese Yen as Central Bank Heads Reveal Policy Divergence

(CTN News) – The U.S. dollar has reached a 7-1/2-month high against the Japanese yen, driven by the diverging monetary policies of the respective central banks.

Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde, Bank of Japan Governor Kazuo Ueda, and Bank of England Governor Andrew Bailey discussed their outlooks during an ECB conference.

Powell indicated that two interest rate hikes are likely to occur this year, with the possibility of a hike in July. In contrast, Ueda emphasized the need for sustained inflation of 2% and adequate wage growth before considering an exit from ultra-easy stimulus.

The recent surge of the U.S. dollar, which has appreciated by approximately 11.55% since late March, has drawn concerns from Japanese government officials regarding its rapid ascent.

The Ministry of Finance and the Bank of Japan intervened in the currency market last autumn when the dollar exceeded 145 yen.

However, the threshold for intervention may be higher this time due to the current favorable conditions, including a rising stock market, lower energy prices, and the return of foreign tourists.

Japanese Government Officials Express Concerns Over Rapid Dollar Appreciation

While the U.S. dollar eased back slightly against the yen in the Asian morning, market observers suggest that a shift in monetary policy should support any intervention.

The underlying driver of sustained impact lies in the divergence of monetary policies, which is unlikely to change shortly.

Meanwhile, the U.S. dollar index, measuring the currency against major peers such as the yen, euro, and sterling, remained relatively stable. The euro experienced a minor decline, while sterling recovered slightly from its previous tumble.

The Australian dollar showed resilience in Australia despite stronger-than-expected retail sales data for May. The currency rebounded slightly after a significant decline the previous day.

Traders are closely watching the upcoming policy decision by the Reserve Bank of Australia, as a recent report revealing a sharp drop in headline inflation has reduced the likelihood of another rate increase.

Chinese Yuan Approaches 7-1/2-Month Low as Central Bank Actions Awaited

In China, the yuan approached a 7-1/2-month low against the dollar in offshore trading. Investors are awaiting the central bank’s next move following the alignment of the official exchange rate with market projections, which broke a two-day streak of stronger-than-expected fixings. The recent actions of China’s monetary authorities signal their discomfort with the currency’s recent weakness.

In summary, the U.S. dollar has strengthened against the Japanese yen due to the contrasting monetary policies of the respective central banks.

Concerns have been raised about the dollar’s rapid appreciation, leading to discussions about possible intervention. However, any intervention is likely to be supported by a change in monetary policy.

The U.S. dollar index remains steady, while other currencies, including the euro, sterling, and the Australian dollar, experience minor fluctuations. Investors also monitor China’s yuan as they await the central bank’s response to the currency’s decline.