USD/JPY consolidates its recent gains to multi-week high, flat-lines above mid-134.00s – by hareshmenghani USDJPY RiskAversion Bonds Fed Currencies
ean session. The pair is currently placed around the 134.65 region, just below a five-week high touched on Wednesday and is influenced by a combination of diverging forces.
A fresh wave of the global risk-aversion trade boosts demand for traditional safe-haven assets and benefits the Japanese Yen . Apart from this, a modest downtick, led by the ongoing pullback in the US Treasury bond yields from a nearly one-month high touched on Thursday, acts as a headwind for the USD/JPY pair. Meanwhile, an intraday decline in the US bond yields narrows the US-Japan rate differential and lends additional support to the JPY.
That said, the prospects for further policy tightening by the Federal Reserve should help limit the downside for the US bond yields and favours the USD bulls. In fact, the markets seem convinced that the Fed will continue raising interestand have fully priced in a 25 basis point lift-off in May. Moreover, the Fed funds futures indicate a small chance of another rate hike at the June FOMC meeting in the wake of the recent hawkish comments by Fed officials.
In contrast, the new Bank of Japan Governor Kazuo Ueda reiterated earlier this week that there is no immediate need to review the 2013 joint statement with the government and that the central bank will maintain current monetary easing. The dovish BoJ stance might further hold back traders from placing aggressive bullish bets around the JPY. The Fed-BoJ policy divergence suggests that the path of least resistance for the USD/JPY pair remains to the upside.
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