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- The US is showing a moderate bullish bias favoured by Speculation that Waller will be Powell’s replacement as Fed Chair.
- Soft US employment data and hopes of Fed cuts are keeping USD longs limited so far.
- The BoJ’s Summary of Opinions cast doubts about immediate rate hikes.
The US Dollar is reverting to the previous two days’ losses as investors welcomed reports suggesting that Fed Governor Waller is emerging as a top candidate for the replacement of Chair Powell in May, while a moderate risk appetite is weighing on the safe-haven Yen.
A report from Bloomberg suggested on Thursday that the US President Trump’s team was impressed with Waller after their meeting. Waller is a dove and was appointed by Trump during his first term, which makes him a suitable top candidate for the president. On the other hand, he has a reputation for defending the central bank’s credibility. The Dollar has bounced up after the news.
US Data released on Thursday revealed that Jobless claims rose to 226,000 on the previous week, above the 221,000 claims expected, following a 218,000 reading in the previous week.
Somewhat later, the St. Louis Fed President delivered a cautious message warning about the threat of tariffs to US inflation and to the economy, and pointed to only one rate cut in the rest of the year. Futures markets, however, keep pricing a rate cut in September and another one before the end of the year.
In Japan, the BoJ’s summary of opinions, also released on Thursday, revealed that some policymakers remain wary about the impact of US tariffs on Japan’s economy, which might take two to three months to be assessed. These comments have cooled hopes for immediate rate cuts.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
