Japanese Yen hangs near one-week low vs. USD amid worries about Japan’s fiscal health

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USD/JPY attracts some follow-through buyers as renewed fiscal concerns undermine the JPY.
The USD preserves hawkish FOMC Minutes-inspired gains and also lends support to the pair.
The divergent BoJ-Fed outlooks cap spot prices ahead of the crucial inflation data on Friday.

The USD/JPY pair gains positive traction for the second straight day – also marking the third day of a move up in the previous four – and climbs to over a one-week high, around the 155.35 area, on Thursday. Spot prices, however, retreat a few pips during the early European session and currently trade just above the 155.00 psychological mark, up nearly 0.20% for the day.

Japan's weak GDP growth in the fourth quarter puts extra pressure on Prime Minister Sanae Takaichi to announce more stimulus boost the economy. This prompted the International Monetary Fund (IMF) to warn against cutting the consumption tax as it would erode Japan's fiscal space and raise debt risks. This, along with a generally positive risk tone, continues to undermine the safe-haven Japanese Yen (JPY) and acts as a tailwind for the USD/JPY pair amid a mildly bullish sentiment surrounding the US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, shot to its highest level in over a week on Wednesday in reaction to a less dovish US Federal Reserve (Fed). Minutes of the January FOMC policy meeting indicated that policymakers remain divided over the timing of further interest rate cuts. Several officials indicated that more rate cuts could be warranted if inflation declines as expected, while others cautioned that easing too early could compromise the 2% inflation target.

That said, the markets are still pricing in the possibility of three 25 basis points (bps) Fed rate cuts this year. This marks a big divergence in comparison to the growing acceptance that the Bank of Japan (BoJ) will stick to its policy normalization path. Furthermore, renewed geopolitical tensions help limit deeper JPY losses and keeps a lid on the USD/JPY pair. Traders now look forward to the US macro data for some impetus, though the focus will remain glued to crucial inflation figures from Japan and the US on Friday.

(This story was corrected on February 19 at 09:32 GMT to say that the DXY shot higher on Wednesday in reaction to a less dovish Fed, not hawkish.)

Japanese Yen Price This week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the British Pound.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.65%	1.10%	1.61%	0.55%	0.05%	0.84%	0.51%
EUR	-0.65%		0.46%	0.97%	-0.10%	-0.61%	0.20%	-0.13%
GBP	-1.10%	-0.46%		0.25%	-0.55%	-1.06%	-0.26%	-0.58%
JPY	-1.61%	-0.97%	-0.25%		-1.06%	-1.53%	-0.76%	-1.05%
CAD	-0.55%	0.10%	0.55%	1.06%		-0.54%	0.30%	-0.03%
AUD	-0.05%	0.61%	1.06%	1.53%	0.54%		0.81%	0.48%
NZD	-0.84%	-0.20%	0.26%	0.76%	-0.30%	-0.81%		-0.33%
CHF	-0.51%	0.13%	0.58%	1.05%	0.03%	-0.48%	0.33%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).