USD/JPY Rebounds as Markets Weigh Fed and BoJ Moves

USD/JPY strengthened during Monday's trading (Sept 14) after posting a slight decline in the previous session. The currency pair traded around 154.60 during European trading hours, bolstered by a stronger US dollar.

The US dollar received a boost from rising oil prices and growing expectations of a Federal Reserve interest rate hike. Concerns over a prolonged Middle East crisis have kept energy prices high and reignited fears of global inflationary pressure.

Crude oil prices rebounded to near four-month highs after a drone attack forced Saudi Arabia to shut down a key pipeline. This pipeline has served as a vital route for diverting oil exports to avoid potential disruptions in the Strait of Hormuz.

On the economic data front, pressure on the Fed to tighten policy has also intensified. The CME FedWatch Tool indicates that markets now price in an 87% probability of a quarter-point rate hike at the next meeting, a sharp rise from 59% the previous week.

These expectations strengthened following hot US inflation data. The Consumer Price Index rose 0.4% month-on-month in August, bringing annual inflation to 3.4%. Core CPI also rose 0.3% month-on-month, exceeding both the previous increase and market forecasts of 0.2%.

Newsmaker Analysis: The current USD/JPY rally is driven by a combination of high oil prices, hot US CPI data, and a sharply increased probability of a Fed rate hike. However, the pair's gains could be capped, as the Japanese yen may find support from expectations of Bank of Japan tightening, the unwinding of carry trades, and domestic capital repatriation. If the Fed turns increasingly hawkish, USD/JPY could continue to rise. Conversely, if the BoJ signals more aggressive rate hikes, the yen could rebound, limiting the dollar's gains against the Japanese currency. (arl)

Source: Newsmaker.id