Japanese Yen remains vulnerable despite softer Greenback
- USD/JPY holds modest gains below 160.00 as the Japanese Yen underperforms its major peers.
- Japan’s fiscal outlook and wide interest-rate gap outweigh expectations of a BoJ rate hike next month.
- US PCE inflation and Fed Chairman Kevin Warsh’s Jackson Hole speech are the key catalysts for the US Dollar this week.
USD/JPY extends its sideways movement below the 160.00 mark on Tuesday, holding modest gains despite a softer US Dollar (USD). The weaker Greenback has failed to lift the Japanese Yen (JPY), which is underperforming its major peers. At the time of writing, the pair trades around 159.25.
The Yen faces persistent pressure from Japan’s expansionary fiscal policy, high government debt and wide interest-rate gap with other major economies. Expectations of further Bank of Japan (BoJ) tightening are providing little support, even as markets fully price in a rate hike next month. Tokyo Consumer Price Index (CPI) data on Friday could offer fresh clues about the central bank’s policy outlook.
Meanwhile, the US Dollar remains tilted to the downside after the US Treasury’s surprise decision last week to increase buybacks of longer-dated government securities. The move revived concerns about the US fiscal outlook and rising government debt, reinforcing the USD-debasement narrative.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, trades around 98.95 after briefly climbing above 99.00 earlier in the day and remains close to a three-month low of 98.56 touched the previous week.
The Greenback faces two key risk events this week that could shape expectations for Federal Reserve (Fed) monetary policy. The US Personal Consumption Expenditures (PCE) Price Index is due on Wednesday, followed by Fed Chairman Kevin Warsh’s speech at the Jackson Hole Symposium on Friday. Markets currently see around a 60% chance that the Fed will leave interest rates unchanged in September, according to the CME FedWatch Tool.
Boston Fed President Susan Collins said on Tuesday that monetary policy is “mildly restrictive” and that it could be appropriate to raise interest rates soon unless there is evidence of sustained disinflation. She added that the labour market is broadly balanced but still faces risks.
Geopolitical developments also remain in focus. Pakistan reported progress in its efforts to revive US-Iran negotiations, although a White House official told Al Jazeera that no talks were underway or scheduled. Still, Washington’s sanctions announcement on Monday suggests a shift toward economic pressure rather than renewed military escalation.
