The USD/JPY currency pair held close to a 23 1/2-month high of 161.92 on Thursday, as the US Dollar remained underpinned by expectations that the Federal Reserve could proceed with interest rate hikes later this year.
Market participants are positioning for tighter U.S. monetary policy after Federal Reserve Chairman Kevin Warsh emphasized a strong commitment to bringing inflation under control, while stating that the broader economy is on solid ground.
This perceived hawkish tilt is reflected in the CME FedWatch tool, which shows that traders are discounting an 83.1% probability of rate hikes by the end of December.
Focus now shifts to the upcoming release of US Personal Consumption Expenditures (PCE) inflation data due later in the day. Market expectations point to headline annual PCE inflation rising to 4.1% in May from 3.8% in April, while core PCE inflation is projected to pick up to 3.4%.
At the same time, the Japanese Yen continued to draw support from heightened speculation that US and Japanese authorities could act jointly in currency markets, capping USD/JPY upside.
Japan’s Finance Minister Satsuki Katayama and US Treasury Secretary Scott Bessent agreed to take action on currencies if needed. In addition, Japan’s Chief Cabinet Secretary Minoru Kihara stated on Tuesday that he would take appropriate action against foreign exchange moves if required.
The minutes from the BoJ’s April meeting released last week showed that some board members favored a quicker pace of rate hikes to prevent underlying inflation from overshooting.
The Summary of Opinions from the June meeting further indicated that policy makers discussed rising inflation risks, with some advocating faster rate increases to bring borrowing costs closer to a neutral level for the economy.
BoJ board member Naoki Tamura added earlier today that it was important to move the policy rate toward the neutral level, which he put at about 2%.
The USD/JPY currency pair was last up 0.08% on the day to trade at 161.88.
TradingPedia.com is a financial media specialized in providing daily news and education covering Forex, equities and commodities. Our academies for traders cover 
