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Source: Newsmaker.id
The Japanese yen strengthened sharply during Monday's trading (Sept 7), reaching a roughly seven-month high against the US dollar. The USD/JPY pair dipped as low as 154.05—its lowest level since February—before hovering around 154.64, marking a decline of approximately 1% for the day. This appreciation reflects a shift in investor sentiment toward the yen, following a prolonged period of pressure on the Japanese currency.
Yen sentiment has been bolstered by growing expectations that the Bank of Japan might accelerate the tightening of monetary policy. The market is also factoring in the possibility of Japanese investors repatriating funds from abroad, which could drive up demand for the yen. Furthermore, speculative positions that had previously bet on a weaker yen are facing pressure after USD/JPY broke below the 155 level.
The 155 level is a critical focal point, as it had previously acted as a barrier to yen appreciation following market interventions by Tokyo and Washington. Breaking below this level is viewed as a bullish technical signal for the yen, opening the door for further gains if the momentum holds.
The potential for a "carry trade" reversal is another key factor. Japan's low interest rates have long made the yen a popular funding currency for purchasing higher-yielding assets. However, if the yen continues to strengthen and Japanese interest rates rise, this strategy becomes less attractive; investors might close out their positions, potentially accelerating the yen's appreciation.
The dollar's weakness against the yen is also exerting broader pressure on the greenback. The euro strengthened to around US$1.1624, while the British pound rose to approximately US$1.3536. Investor focus has now shifted to US inflation data due on Friday, following a strong Non-Farm Payrolls report that led the market to price in a roughly 57% probability of a Federal Reserve rate hike this month.
Newsmaker Analysis: The short-term trajectory for USD/JPY remains tilted toward the downside as long as the yen holds firm below the 155 level. US CPI data will serve as the next major catalyst. Hotter-than-expected inflation could bolster the likelihood of a Federal Reserve rate hike and help the dollar rebound, whereas a softer CPI reading could potentially prolong the greenback's weakness. However, with the BOJ and ECB also on a tightening path, the scope for dollar appreciation is likely to remain more limited than in the past.
Source: Newsmaker.id