Key Moments
- USD/JPY retreats from a high of 154.40 to 153.90 but retains a mildly bullish bias.
- Trump confirms former Fed governor Kevin Warsh will succeed Jerome Powell as Federal Reserve Chair in May.
- Tokyo CPI data shows cooling inflation, reducing near-term pressure on the Bank of Japan to raise rates.
USD/JPY Slips Below 154.00 After Early Spike
The US Dollar edged lower against the Japanese Yen on Friday after hitting session highs at 154.40.
Currently, USD/JPY trades around 153.90, just below 154.00, but the pair maintains a mildly constructive tone.
The earlier spike followed confirmation that former Fed governor Kevin Warsh will replace Jerome Powell in May.
Market Reacts to Warsh Nomination
Earlier on Friday, the Dollar had already strengthened versus major currencies. Investors responded positively to reports that Warsh would be Trump’s Fed pick.
He is seen as someone who will safeguard the Fed’s independence, easing concerns about a more dovish candidate.
US Fiscal Developments Support the Dollar
The Greenback received additional support after reports indicated that Senate Democrats and Republicans reached a deal on a spending package.
This deal increased expectations that the US can avoid another government shutdown, reinforcing positive sentiment toward the Dollar.
US Treasury Comments Boost the Dollar
Earlier this week, Treasury Secretary Scott Bessent reiterated that Washington supports a strong-dollar policy.
He also denied speculation of a joint US-Japan intervention to support the Yen, a rumor that had weighed on the Dollar.
Japan Inflation Data Reduces BoJ Pressure
Tokyo’s latest Consumer Price Index showed inflation continued to moderate in January.
Core PPI fell to the Bank of Japan’s 2% target, down from 2.3% in December and 2.8% in November.
This trend reduces immediate pressure on the BoJ to raise rates.
| Indicator / Level | Latest Reading | Previous | Prior |
|---|---|---|---|
| USD/JPY session high | 154.40 | ||
| USD/JPY (current) | 153.90 | ||
| Japan core PPI – January | 2% | 2.3% (December) | 2.8% (November) |
Federal Reserve Policy Overview
The Federal Reserve sets US monetary policy to maintain price stability and promote maximum employment.
It mainly adjusts interest rates to achieve these goals.
When inflation exceeds 2%, the Fed raises rates. Higher rates increase borrowing costs and support the Dollar by making US assets more attractive.
If inflation falls below 2% or unemployment rises, the Fed can cut rates to stimulate activity, which generally weakens the Dollar.
Fed Meetings and Structure
The Federal Open Market Committee (FOMC) meets eight times a year to review economic conditions and decide policy.
It includes seven Board of Governors members, the New York Fed president, and four rotating regional presidents.
Quantitative Easing and Dollar Impact
In times of financial stress or low inflation, the Fed may use Quantitative Easing (QE).
QE increases credit by creating Dollars to buy high-quality bonds.
This tool typically exerts downward pressure on the Dollar.
Quantitative Tightening and the Dollar
Quantitative Tightening (QT) is the opposite of QE.
The Fed stops reinvesting maturing bonds and lets them roll off its balance sheet.
This process generally strengthens the Dollar.
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