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USD/JPY loses ground for the second consecutive day, trading around 141.20 during the Asian hours on Wednesday. The Japanese Yen (JPY) remains solid following the remarks from Bank of Japan (BoJ) board member Junko Nagakawa.
BoJ board member Nagakawa stated that the central bank may adjust the extent of its monetary easing if the economy and prices align with its projections. Despite the rate hike in July, real interest rates remain deeply negative, and accommodative monetary conditions persist. Should long-term rates surge, the BoJ may reconsider its tapering plan during its policy meetings, as necessary.
The downside of the USD/JPY pair is also driven by the contrasting monetary policies of the Bank of Japan and the US Federal Reserve, which has been encouraging the unwinding of carry trades and boosting demand for the Japanese. BoJ Governor Kazuo Ueda reiterated the central bank's commitment to continue raising interest rates, provided the Japanese economy meets the bank’s forecasts through FY2025.
US Dollar (USD) remains subdued as the Treasury yields continue to decline ahead of the US Consumer Price Index (CPI) data scheduled to be released later in the North American hours. The upcoming inflation report may offer fresh cues regarding the potential magnitude of the Federal Reserve's (Fed) interest rate cut in September. Moreover, the recent US labor market report has cast doubt on the possibility of an aggressive Fed interest rate cut.
According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has slightly decreased to 31.0%, down from 38.0% a week ago.
