Persistent weakness in the Japanese Yen looks set to continue even as the country's monetary authorities push ahead with tightening borrowing costs. Analysts Chong Hoon Park and Nicholas Chia from Standard Chartered project that the Bank of Japan (BoJ) will increase its benchmark policy rate by 25 basis points (bps) during its scheduled September 17-18 meeting. Such a move would lift the benchmark rate to 1.25%. Nevertheless, the analysts stress that policy tightening from Tokyo by itself will not be sufficient to drag down the USD/JPY currency pair, given the broader macroeconomic headwinds facing the Japanese currency.
Projected Rebound to the 155-160 Upper Band in Q4
According to the bank's assessment, recent positive developments surrounding the Japanese Yen appear to be entirely factored into current exchange rates. Consequently, the threshold for market participants to face unexpected downside surprises remains minimal. Chong Hoon Park and Nicholas Chia anticipate that USD/JPY will climb back toward the upper half of the 155-160 territory during the fourth quarter. They characterize the upcoming September rate increase as a pre-emptive adjustment that will subsequently transition into a far more gradual, patient phase of monetary policy normalisation, while avoiding an overly hawkish stance that could destabilise domestic markets.
Dollar Climbs Toward 155 Ahead of FOMC and BoJ Gatherings
Trading desks witnessed USD/JPY pushing toward 155.00 during early Asian market activity on Tuesday, attempting to extend its upward momentum as global participants brace for policy decisions from both the Federal Open Market Committee (FOMC) and the BoJ. Elevating the greenback's appeal, elevated bets on Federal Reserve rate increases combined with petroleum-driven inflation threats have anchored US bond yields close to multi-year peaks. These firm yields continue to inject broad upward momentum into the US Dollar and keep USD/JPY heavily supported. On the other hand, should investors aggressively reprice the BoJ's tightening trajectory toward a steeper, more hawkish slope, the Yen could find an underlying cushion capable of capping further dollar gains.
Aussie Weakens Below 0.7150 While Gold Languishes Under $4,300
The strength of the US Dollar and persistent bond yield pressures have reverberated across competing global assets. In Tuesday's Asian hours, the Australian Dollar (AUD/USD) stayed on the defensive below 0.7150, lingering near a three-week low touched on Monday. Lingering inflation risks sparked by oil markets alongside anticipation surrounding the FOMC gathering provided steady dollar backing, while mixed economic activity indicators out of China for August failed to provide meaningful support to the Australian currency.
Meanwhile, bullion markets faced similar headwinds as spot Gold found it difficult to build on an initial modest recovery attempt in Asia. Hovering near its one-month trough recorded a day earlier, the precious metal traded right below the $4,300 benchmark. Traders broadly stepped aside into wait-and-see mode ahead of the pivotal two-day Federal Reserve monetary policy deliberations kicking off later in the session, holding back aggressive positioning across commodities.
