The USD/JPY exchange rate is trading around 143.50. It’s shed over 8% so far during Asian trading on Thursday. This rally is happening even with the US Federal Reserve’s recent hawkish pause that would normally be expected to support the US Dollar. The Dollar continues to look weak across the broader board. Together with some remarks from Bank of Japan (BoJ) Governor Kazuo Ueda, this has weighed on the outlook for the currency pair.
In particular, USD/JPY is under heavy pressure. This disruption is largely due to persistent, self-inflicted trade uncertainties and geopolitical risks that continue to artificially prop up the Japanese Yen. The US Dollar is up against a tough field. Yet it tries to flex its muscle even as its economic predictors now lie under a dark cloud of uncertainty. Uncertainty over future monetary policy changes has played a role in this chaos in the currency market.
Governor Ueda’s comments have already had a large impact on USD/JPY. This is a sign that the Bank of Japan is making a dovish shift towards changes to monetary policy. His words suggest that the Fed is still committed to promoting a healthy, growing economy while balancing the risks of inflation. As such, traders are hanging on to every development coming from the BoJ for hints about the future direction of the currency.
The Australian Dollar (AUD) has been surprisingly resilient, bouncing back above 0.6450 in the Asian session on Thursday. On the AUD/USD pair, the upside is supported by a positive risk tone after a recent surprise rate cut in China. This hawkish turn in monetary policy has supported the Aussie. Now, it is better poised to take advantage of the new market dynamics, leading to better performance compared to its US counterpart. The US Dollar’s inability to capitalize on gains inspired by the Fed’s hawkish signals has further highlighted its vulnerability in the current trading environment.