Japanese Yen hits fresh lows at 160.50 US Dollar as BoJ’s Ueda is hospitalized

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The Japanese Yen (JPY) extends its decline on Wednesday, threading further beyond the key 160.00 per US Dollar (USD), which is considered a red zone for Tokyo intervention.

The USD/JPY rallies to fresh highs at the 160.50 area, deep within intervention territory.
News of the hospitalization of BoJ Governor Ueda has increased bearish pressure on the Yen.
The Japanese central bank is expected to hike its benchmark interest rate by 25 basis points on June 16.

The Japanese Yen (JPY) extends its decline on Wednesday, threading further beyond the key 160.00 per US Dollar (USD), which is considered a red zone for Tokyo intervention. The USD/JPY pair has reached session highs, above 160.50, following news that the Bank of Japan Governor, Kazuho Ueda, has been hospitalized.

A recent BoJ statement announced the news, without further information about Ueda’s illness. The statement, however, affirms that the central bank’s governor will miss the June 15-16 monetary policy meeting and will be replaced by the Deputy Governor, Ryozo Himino, while Deputy Shinichi Uchida will hold the press conference following the decision.

A BoJ rate hike is already priced in

The BoJ is widely expected to tighten interest rates by a quarter of a percentage point next week, setting its benchmark rate at 1%, its highest level in more than 30 years. Investors, however, will be more interested in the press release, looking for hints of a firmer commitment to monetary tightening amid overall Yen weakness.

Japanese authorities allegedly spent JPY 11.7 trillion, about USD 73.14 billion, on April 30 to shore up an ailing Yen, but only for short-term relief. Concerns about the Japanese economy’s exposure to high Oil prices and, above all, the comparatively low Japanese Government Bond (JGB) yields, as markets ramp up bets on Federal Reserve (Fed) rate hikes, have crushed the Japanese currency.

Later on Wednesday, the US Consumer Price Index (CPI) figures for May are likely to endorse those views as consumer inflation is expected to have accelerated to a three-year high. Higher inflation levels, coupled with the strong labour figures released last week, will add pressure to the Fed to tighten its monetary policy, even with the dovish Kevin Warsh as Chairman. In that case, US Treasury yields are likely to jump higher, bringing the US Dollar up with them.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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