The strong dollar pulls the yen down into the intervention area

News about the US dollar rate index: A strong US dollar kept the yen close to a new 34-year low on Tuesday, putting investors on high alert for intervention as they anticipated this week’s rate decision by the Bank of Japan and significant US inflation data.

The sharp US-Japan interest rate differences came back into prominence on Monday, when the yen touched 154.85 yen, its lowest level since the mid-1990s, and the tensions between Iran and Israel eased, but the currency remained stuck. At one point, it was trading at 154.76 per dollar.

As the yen declines around 155.00, traders have been watching closely, as many observers see this as the new tipping point for Japanese government intervention. Tokyo’s potential response to the Bank of Japan’s (BOJ) two-day policy meeting, which begins on Thursday, is questionable.

In fresh projections that are likely to be released on Friday, Japan’s central bank is anticipated to estimate that inflation will remain at or below its 2 percent goal for the next three years, indicating that it is prepared to hike interest rates this year from their current near-zero levels.

According to Commonwealth Bank of Australia currency analyst Carol Kong, yen depreciation may push the central bank to “strike a more hawkish tone,” which would advance prospects of another rate rise and bolster the yen.

“But I expect USD/JPY to remain elevated in the near term because of broad USD strength, which will keep alive the possibility of FX intervention.” The BOJ’s policy route is made more difficult by the weakening yen, as some market participants predict the central bank may face pressure to raise interest rates sooner than it would like in order to stop the currency’s slide.

Shunichi Suzuki, Japan’s finance minister, said on Tuesday that local authorities would collaborate closely with international colleagues to address excessive volatility in the foreign exchange market. Suzuki has been cautioning against speculative currency swings in recent weeks.

The rise of the dollar has been widespread, with gains this year heading around five percent. It was last trading at 106.09, below the five-month highs reached last week, as hopes for rate cuts were tempered by remarks made by Federal Reserve officials and a string of hotter-than-expected inflation statistics.

According to the CME FedWatch Tool, markets are presently pricing in a 46% possibility of the Fed’s first rate decrease beginning in September, with November following closely at 42%. That was a stark departure from a few weeks before, when markets were speculating that the US monetary easing cycle would start in June.

This week, investors will get another opportunity to evaluate the health of the US economy: on Thursday, first-quarter GDP data will be released, and on Friday, the Fed’s favored inflation indicator, the personal consumption price expenditures (PCE) index, will be released.

“It is possible that if this week’s GDP and/or PCE data increase worries about disinflation stopping off, markets may further push back the anticipated first rate reduction from September. Thus, a stronger USD and higher US rates are the risks,” said Kong of the Commonwealth Bank of Australia.

According to a Reuters survey, market expectations are for a 0.3% rise in the headline PCE figure in March, which is unchanged from the previous month, and a 2.6% gain year over year, as opposed to a 2.5% increase in February.

The European Central Bank (ECB) and Bank of England (BoE) are still expected to begin rate cuts by the middle of the year, even if September has become the new favorite for the Fed’s first rate decrease. The euro is headed for its largest monthly decline against the dollar since January as a result of this difference. Tuesday saw no movement in the value of the euro, which stood at $1.0655.

Against the US dollar, sterling hit a new five-month low on Monday at $1.2299. It was last trading at $1.2354.