USD/JPY Rises with Hawkish Fed, Dovish BOJ

The USD/JPY exchange rate has been on a rollercoaster ride since early 2021, with bulls taking the lead in recent weeks. The pair hit a high of 150.00 last year, the best level since 1990, before undergoing a massive downward correction that brought it below 130.00 in mid-January 2023. However, the U.S. dollar has since regained its momentum, and if Treasury rates keep rising, the recovery may have more room to run.

The main driver of the USD/JPY’s recent surge is the hawkish stance of the U.S. Federal Reserve. The Fed has signaled a more aggressive path of interest rate hikes in response to hotter-than-expected U.S. economic data, such as CPI and labor market results. As a result, U.S. Treasury rates have shot up over the past month, with the 10-year yield momentarily recapturing the 4.0% level, the highest since November 2022.

Dovish BOJ Keeps Japanese Yen Unattractive

On the other hand, the Bank of Japan has maintained its dovish stance, refusing to alter its current policies, including massive quantitative easing and yield curve control. Incoming BOJ Governor Kazuo Ueda has recently reiterated the bank’s position, saying that the current economic circumstances do not warrant a change in policy. This stance means that Japanese bond yields will remain subdued, limiting the appeal of the yen in the FX space.

USD/JPY May Continue to Rise

The contrasting policies of the Fed and the BOJ suggest that the USD/JPY may continue to rise. If U.S. Treasury rates keep climbing, the U.S. dollar will remain attractive to investors, and the yen will struggle to compete. However, geopolitical tensions, global economic slowdowns, and other factors can always create unexpected market turbulence, so traders must remain cautious.

In conclusion, the USD/JPY has been on a wild ride since early 2021, with the U.S. dollar currently gaining ground against the Japanese yen due to the hawkish Fed and the dovish BOJ. If Treasury rates keep rising, the USD/JPY may continue to rise, but unforeseen events can always impact the markets, so traders must remain vigilant.