Yen Strengthens Sharply, Ueda Opens Door to Tightening Despite Oil Rise
USD/JPY fell 1.25% on Thursday and returned below 158.00, settling around 157.80, as the yen strengthened broadly. This move reversed an early-week rally that had approached 160 and erased most of the previous five-session gains, confirming the market's renewed sensitivity to central bank signals amid the energy shock.
The main trigger came from the Bank of Japan. The BoJ kept interest rates at 0.75% by a vote of 8-1, but Governor Kazuo Ueda's statement and press conference were seen as hawkish. Ueda warned that rising oil costs due to the Middle East conflict could push underlying inflation higher, and that companies could pass on more aggressive cost increases as wages and prices were already rising. Dissent also continued, with Takata board members again pushing for a 25 bps rate hike to 1%, maintaining market expectations that tightening options were not yet closed.
In the US, the Fed held interest rates at 3.50%–3.75%, still projecting one cut this year, but flagging the risk of rising inflation stemming from the Iran war, reinforced by a hotter-than-expected February PPI. Thursday's US data was also mixed: initial jobless claims fell less than consensus, but the market still understood the underlying message that inflation risks had not disappeared. This combination prevented the dollar from collapsing, but for this session, the "BoJ hawkish" stance prevailed, leading USD/JPY to decline.
Liquidity also has the potential to influence short-term movements. Japan will be closed on Friday (the Vernal Equinox), so the market expects thin liquidity and currency pairs could move within a wide range heading into the weekend. The next focus will be on the wage shunt development, which is said to be near 5.9%, and the results of the first round of Rengo on March 23, as wage data is key to assessing whether Japanese inflation can sustain itself without temporary support from energy.
Impact & What Market Participants Need to Watch
Energy and Japanese Inflation: Will oil continue to drive core inflation and strengthen the BoJ's case for remaining hawkish?
Wage signal (shunto/Rengo): Confirmation of high wages could strengthen expectations of further tightening.
USD/JPY psychological levels: After failing to hold near 160, market focus shifts to the resilience of the move below 158.
US inflation data and Fed tone: A hot PPI makes the market sensitive to the next inflation release and changes in the pricing rate cut.
Japanese holiday liquidity: Movements could be "faster" and wider due to thin market depth.(CP)
Source: Newsmaker.id
