USD/JPY Rally Ahead of Central Bank Meeting Parade

This week's central bank meeting schedule further emphasizes the gap in the policy directions of the Bank of Japan (BoJ) versus other major central banks.

The Japanese yen was battered ahead of the meeting schedule of a number of central banks this week which will further emphasize the gap in the policy directions of the Bank of Japan (BoJ) versus other major central banks. USD/JPY rallied for six days non-stop to its highest range since January 2017 at the 117.80s level. EUR/JPY bounced 0.7 percent on continuing Russian-Ukrainian talks, while GBP/JPY gained 0.5 percent.

USD/JPY Daily chart via TradingView

The news about the progress in the Russia-Ukraine negotiations became the talk of the market players in the trading at the beginning of the week. Prices of various commodities and commodity dolls weakened, while the euro consolidated. The US dollar index also corrected around 0.25 percent to around 98.87. However, the US dollar remains ahead against the Japanese yen.

Also Read : US Inflation Data Help Dollar Conquer Japanese Yen

Meetings of the three central banks over the next few days are an unfavorable focus for the yen. The US Federal Reserve and the Bank of England (BoE) are strongly suspected of announcing an increase in interest rates of at least 25 basis points, while the Bank of Japan (BoJ) must maintain monetary stimulus to support economic recovery.

"The Ukraine conflict is not expected to prevent the BoE and Fed from raising interest rates in the next week, while the BOJ is not changing policy," said analysts at MUFG Bank of Japan, as reported by Reuters, "Unless there is a (more) significant de-escalation in the Ukraine conflict, the dollar will remain stronger."

The Russo-Ukrainian war has triggered a significant increase in commodity prices and scarcity of a number of vital commodities, thus increasing the global inflation rate. Progress in recent negotiations has not been able to bring commodity prices back to pre-war levels. Central banks tend to raise interest rates to tackle high inflation rates.

Also Read : UK GDP Growth Fails to Stimulate Pound Sterling Exchange Rate

The futures market is currently pricing in between 6-7 Fed rate hikes of 25 basis points each by the end of this year, as well as 6 BoE rate hikes. However, market participants generally feel more confident in the hawkish stance of the Fed than the BoE.

"With the UK more exposed to Russian supply disruptions than the US, we think the risks are more skewed towards a disappointing BoE and sterling weakness to $1.2894," said analysts at the Commonwealth Bank of Australia.