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As the USD/JPY currency pair nears 137.00, the policy gulf between the Fed and the BOJ widens

Alina Haynes

Jul 25, 2022 11:43

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The US dollar pushed higher against the Japanese yen on Wednesday as investors gambled on a wider policy gulf between the Federal Reserve and the Bank of Japan. Since a small rebound around 136.00 on Friday, the asst has been making steady progress toward the pivotal level of 137.00.

 

On Wednesday, the Fed is likely to raise interest rates to 2.5 percent from their current level of 1.75%. Fed Chair Jerome Powell may announce a rate hike of 75 basis points to combat inflation (bps). At one point, when price pressures were in the double digits, the likelihood of a rate hike of even 1 percent was widely considered a certainty. Long-term inflation expectations fell to 2.8% in July from 3.1% in June, and Wall Street profit growth was weak, forcing the Fed to delay an increase in interest rates.

 

Meanwhile, last week's release of Japan's Consumer Price Index gave hope to those who buy the yen (CPI). After being reported at 2.5%, the National CPI has been revised down to 2.4%. Although core CPI rose from 0.8% to 1.0% since the last report. As long as food and energy costs stayed over 2 percent, the BOJ remained worried. Officials at the Bank of Japan (BOJ) are likely to be pleased with the recent uptick in demand for durable goods.

 

The increasing core CPI in Japan has little bearing on whether or not BOJ Governor Haruhiko Kuroda would make a hawkish remark. The Bank of Japan (BOJ) has promised to keep pumping money into the economy and to sustain its dovish tone.