Key points:

  • The yen strengthens against the US dollar as the BoJ’s negative rates policy is expected to end.
  • Rising wages in Japan could stimulate consumer spending.
  • The dollar index is hovering near its low since January 15th.

On Monday, the yen showed growth against the US dollar. Expectations for a policy change by the Bank of Japan (BoJ) at its next meeting on March 17-18, 2024 contrast with forecasts for a Fed rate cut in June.

There is a possibility that the BoJ will abandon its policy of negative interest rates, which will make the yen more attractive to traders.

What is happening with the USD/JPY currency pair

The dollar index, which measures the dollar against the yen and five other major currencies, was stuck near a two-month low hit on Friday. The cooling of the US labor market, confirmed by monthly employment data, strengthens the Fed’s intention to ease monetary policy.

The US dollar fell 0.06% against the yen to 146.995 yen, nearing a five-week low. The dollar index rose 0.06% to 102.74, hovering near its lowest since January 15.

Financial strategists expect USD/JPY to remain strong this week.

Expected increase in Bank of Japan rates

A growing number of Bank of Japan members are positive about the possibility of ending the negative interest rate policy at its March 18-19 meeting. The decision may be driven by expectations of significant wage growth at large Japanese companies, which will stimulate consumer spending.

The Bank of Japan is also considering moving to a new quantitative monetary policy framework that would replace the existing yield curve control. In addition, an upward revision to Japan’s economic growth last quarter means the country avoided a technical recession.

Dynamics of other currencies

The euro was unchanged against the US dollar and traded at $1.0937. On Friday it reached $1.0980, the highest since January 12. The European Central Bank (ECB) kept interest rates at record lows last Thursday, but also paved the way for a rate cut later this year.

The pound sterling is also stable at $1.2850. On Friday it reached $1.2890, the highest since late July. This comes amid expectations that the Bank of England will cut rates more slowly than the Fed or the ECB. On Tuesday, the pound sterling may change after the publication of labor market data.