On Wednesday, June 25, the Bank of Japan and USD/JPY took center stage amid shifting sentiment toward the Bank’s rate path. The Summary of Opinions offered insights into policymakers’ stances on inflation, the economic outlook, and the timing of the next rate hike. Key opinions included:
Japan’s economic growth is likely to moderate due to the effects of trade and other policies in each jurisdiction.
While much of the hard data for April and May has been relatively solid, it is likely that the effects of tariff policies are yet to materialize.
The Bank needs to take some time to examine the magnitude of the impact of tariffs on the real economy.
Underlying CPI inflation is likely to be sluggish, mainly due to the deceleration in the economy, and risks to this inflation are skewed to the downside.
Although uncertainty regarding trade policies remain extremely high, on the domestic front, wage developments have been solid, and the CPI has been slightly higher than expected.
Later in the session, Fed Chair Powell will deliver a second day of testimony on Capitol Hill. Support for a Q3 Fed rate cut on optimism inflation is sustainably falling toward the 2% target and concerns about the labor market could pressure the US dollar. A more dovish Fed rate path may drag USD/JPY below the 50-day EMA toward 142.5.
Conversely, the USD/JPY pair could rise toward the June 23 high of 148.026 if Powell stands firm on keeping rates steady.
Beyond the Fed, trade developments and Middle East headlines will also drive USD/JPY trends.
