USD/JPY Falls to Six-Month Low as BoJ Rate Path Shifts Upward
The US dollar has weakened against the Japanese yen in recent days, despite strong American economic data. The USD/JPY pair fell to a six-month low on Monday after losing nearly two yen, contradicting expectations that it would strengthen following Friday's payrolls report.
Friday's jobs numbers showed 162K new hires against an expected 53K, with revisions up in June and July and unemployment steady at 4.1%. This led to a rise in the likelihood of a rate hike by the Federal Reserve at its meeting on September 15-16, but it did not impact the yen.
The Bank of Japan's rate path has been shifted upward, with swaps pricing in a quarter-point hike on September 18 at nearly 97% and October chances rising to one-in-four. However, this change has yet to be reflected in the currency market, with USD/JPY giving up around six yen since its high on September 2.
The key driver of this movement is the Bank of Japan's expected interest rate hike, which would narrow the yield differential between Japanese and US bonds. The BoJ currently has a policy rate of 1%, while the target range in Washington is 3.50-3.75%. Delivering a quarter-point hike at each meeting would reduce the spread from around 2.6 percentage points to roughly 2.6 percentage points.
The Federal Reserve's decision will be crucial for the pair, with a hot inflation print on Friday potentially pushing USD/JPY back up. However, this is not expected to change Tokyo's stance, which remains focused on its domestic economic conditions rather than external factors.