Yen stronger on firm BoJ rate-hike bets

The USDJPY pair tumbled to near 156.00 late Tuesday, with the Japanese Yen strengthening amid expectations that the Bank of Japan will tighten its monetary policy further in its July monetary policy meeting.

Economists expect that the BoJ will raise interest rates further by 10 basis points, prompted by steady inflation above the bank’s target of 2%.

In June, annual National Consumer Price Index (CPI) rose steadily by 2.8%.

The core CPI, which excludes volatile food and energy items, accelerated to 2.2% from the former release of 2.1%. National CPI, excluding fresh food, grew slower by 2.6% from the estimates of 2.7%, but remained higher than the former release of 2.5%.

BoJ policymakers remain worried about rising inflation due to the weak Japanese Yen, resulting in higher exports making them more competitive in global markets.

Meanwhile, the appeal of the US Dollar improves as a safe haven due to increasing risk aversion.

The DXY Dollar Index, which tracks the greenback’s value against six major currencies, rose to near 104.50.

This week, investors will focus on the US Q2 Gross Domestic Product (GDP) and the Personal Consumption Expenditure Price Index (PCE) data for June. The economic data will provide cues about when the Federal Reserve will begin reducing interest rates.

(Source: OANDA)