Bank of Japan’s Stance
Bank of Japan (BoJ) Governor Kazuo Ueda adhered to his established stance during the event. Ueda emphasized that underlying inflation remains below the BoJ’s target of 2%, underscoring the BoJ’s commitment to its ultra-easy monetary policy. Ueda clarified that the BoJ will not entertain the idea of raising interest rates until robust wage growth and domestic demand replace cost-driven factors, leading to sustainable inflation around the 2% target.

The US dollar has been strengthening against the Japanese yen in recent months due to a number of factors, including the widening interest rate differential between the two countries. The US Federal Reserve is raising interest rates to combat inflation, while the Bank of Japan is keeping interest rates low. This makes US assets more attractive to investors, which drives up the value of the dollar.

The interest rate differential between the US and Japan is currently at its widest level in decades. The US federal funds rate is 1.50%, while the Bank of Japan’s policy rate is -0.10%. This means that investors can earn a much higher return on their investments by holding US dollars than by holding Japanese yen. The Japanese trade deficit with the US widened to a record $1.3 trillion in 2022. This means that Japan had to spend more dollars to buy goods from the US than it earned by selling goods to the US. This put downward pressure on the value of the yen.

Technical Outlook
From a technical perspective, USD/JPY encounters resistance just above 147. Conversely, support levels are seen at about 145. These technical indicators offer valuable insights for traders navigating the current market environment. The Japanese yen, influenced by widening interest rate differentials between Japan and the United States, will remain under pressure. The currency’s susceptibility to short-selling due to low yields in Japan, coupled with its attractiveness for funding trades, will keep the USD/JPY above 145 in the medium term.

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