The Resurfacing Intervention Risks of USD/JPY

The Resurfacing Intervention Risks of USD/JPY

The USD/JPY is currently at 154.784, with intervention risks resurfacing in the foreign exchange markets. Masato Kanda recently issued a warning, stating that the government would intervene in the case of any speculative or disorderly moves. This warning has sparked concerns among investors, especially after the sharp pullback from 160. The warnings could possibly intensify sooner than expected, causing further volatility in the market.

On Wednesday, foreign investments into bonds and stocks will be closely monitored by investors. However, these numbers are not likely to influence the Bank of Japan rate path significantly. The focus will shift to wage growth numbers and the Bank of Japan Summary of Opinions on Thursday, May 9. It is anticipated that wage growth and services inflation will play a crucial role in fueling demand-driven inflation, ultimately impacting the Yen.

Despite the pick-up in services sector activity in April, concerns linger over the forecasts for wage growth. Economists predict that average cash earnings will increase by 1.5% year-on-year in March, following a 1.8% rise in February. If the wage growth figures fall below expectations, it could have a ripple effect on consumer price trends and the likelihood of a Bank of Japan rate hike in the near future.

As the week progresses, investors will turn their attention to the Federal Reserve. FOMC members Susan Collins, Lisa Cook, and Philip Jefferson are scheduled to speak and provide insights on inflation, the labor market, and the Fed rate path. Recent speeches by Fed members have introduced uncertainty regarding a potential rate cut in September. Despite a slowdown in wage growth in April, inflation remains persistent, creating a dilemma for policymakers in projecting future rate adjustments.

The intervention risks surrounding the USD/JPY have heightened, with government warnings and economic indicators contributing to market volatility. The upcoming events, including wage growth data, Fed speeches, and inflation reports, will likely shape investor sentiment and influence trading patterns. It is crucial for market participants to stay informed and vigilant in navigating the changing landscape of the foreign exchange markets.

Forecasts

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