USD/JPY: Attention turns to the FOMC for now
Week in review
The USD/JPY opened the week at 157.57. Dollar selling led early in the week after tensions between the US and Europe intensified over Greenland, pushing the pair down to 157.44. However, risk-off yen buying did not persist, and the USD/JPY recovered to around 158. The USD/JPY rose to around 158.50 as overseas investors entered the market on 21 January. This was driven by a sharp rise in yields after supply-demand conditions in the bond market deteriorated following Prime Minister Sanae Takaichi's press conference on the evening of 20 January. The pair then briefly fell back to around 157.50 after US Treasury Secretary Scott Bessent and Japan's Finance Minister Satsuki Katayama repeatedly called for calm in financial markets, before settling around 158. Dollar buying resumed on 21 January after US President Donald Trump backed off from threats of imposing punitive tariffs on European countries that opposed his plan to annex Greenland, and the USD/JPY rose beyond 158.50 through 22 January. The pair climbed to 158.90 following the release of better-than-expected US economic data, although upside momentum was capped amid concerns over developments in the Middle East. The BOJ left policy rates unchanged and revised up its inflation outlook on 23 January, but yen selling during Governor Kazuo Ueda's post-meeting press conference drove the USD/JPY above 159. The pair then fell sharply to around 157.50 immediately after the press conference, before rebounding to below 158.50 shortly thereafter amid volatile trading (Figure 1). The yen and dollar weakened among G10 currencies this week. The AUD/JPY rose to around 108.50 after the release of strong employment figures this week boosted expectations of a rate hike by the RBA next month, with the pair reaching the highest level since 2024 (Figure 2).
FIGURE 1: USD/JPY
Note: As at 17:00 JST on 23 January
Source: EBS, Refinitiv, MUFG
FIGURE 2: MAJOR CURRENCIES' RATE OF CHANGE VS USD THIS WEEK
Note: As at 17:00 JST on 23 January
Source: Bloomberg, MUFG