USD/JPY slumps to multi-week lows after suspected MoF 'rate check'

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USD/JPY plunges over 300 pips on Friday amid a suspected Japan Ministry of Finance (MoF) 'rate check', as excessive Yen (JPY) weakness fuels intervention fears. At the time of writing, the pair is trading around 156.18, down nearly 1.40% on the day, sliding to its lowest level since late December.

USD/JPY sinks around 1.4% as intervention fears resurface.
Broad-based US Dollar weakness adds to downside pressure.
BoJ holds rates at 0.75% but strikes a cautiously hawkish tone.

At the same time, broad-based weakness in the US Dollar (USD) is adding to the downside pressure, as concerns over Federal Reserve (Fed) independence and US President Donald Trump’s protectionist trade policies continue to erode confidence in the Greenback, despite a recent easing of US-European Union (EU) trade tensions.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is trading around 98.76, hovering near its lowest level since October 3.

Meanwhile, the Bank of Japan (BoJ) announced its policy decision earlier on Friday, leaving the policy rate unchanged at 0.75%, as widely expected, in an 8-1 vote. Board member Hajime Takata dissented, favoring a 25-basis-point hike to 1.00%.

Beyond the rate decision, the BoJ struck a cautiously hawkish tone in its updated Outlook Report. The central bank said Japan’s economy is likely to continue growing moderately. While headline inflation is expected to cool below 2% in the first half of the year, the BoJ still sees underlying inflation gradually firming later in the period.

The Bank also reiterated its tightening bias, noting that “real interest rates are at significantly low levels,” and that if the outlook is realized, it will “continue to raise the policy interest rate.”

Attention now turns to US monetary policy, with markets looking ahead to the January 27–28 FOMC meeting. The Federal Reserve is widely expected to keep interest rates unchanged in the 3.50%-3.75% range.

However, investors are still pricing in two rate cuts later this year, a backdrop that continues to keep the US Dollar tilted to the downside.

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).