The dollar soared to a new high against the yen, marking its strongest position in 34 years. This surge was largely driven by the Federal Reserve's commitment to maintaining higher interest rates for an extended period.
Thursday morning sees the USDJPY pair actively seeking new gains. Breaking past the significant milestone of ¥155.00 overnight, the dollar's upward momentum now targets ¥156.00.
Investors have favored the dollar over the yen due to the substantial interest rate gap between the US and Japan. While the US Federal Reserve pursues a relatively tight monetary policy, Japan's central bank maintains an ultra-loose stance.
Recent robust economic data in the largest global economy has prompted senior Federal Reserve officials, including Chair Jerome Powell, to suggest that persistently high inflation will probably postpone the expected initiation of cuts to the benchmark interest rate, which presently stands at its highest level in 23 years.
Meanwhile, Japanese officials have emphasized their vigilance over the yen's movements and readiness to intervene by purchasing yen assets if speculation becomes excessive. A weaker yen boosts exports but poses challenges for imports, leaving the Bank of Japan with a tough decision to make.
Japan’s central bank is meeting on Friday to discuss the course of action regarding interest rates. In their previous session, policymakers terminated a longstanding practice of negative interest rates and raised borrowing expenses for the first time since 2007. Presently, market expectations lean towards maintaining the rate at 0.1%. However, there's apprehension that such a decision could further weaken the yen. Any unforeseen developments could swiftly escalate volatility in the dollar-yen pairing.