- USD/JPY strengthens due to the increased risk-off sentiment.
- BoJ announced an unscheduled bond-purchasing exercise on Monday.
- Higher US Treasury yields contribute support to underpin the Greenback.
USD/JPY surges to its highest level in eleven months, hovering around the 149.90. This upward movement is attributed to the US Dollar (USD) benefiting from a decline in investor appetite and increased risk-off sentiment, leading to a flow of funds into the safe-haven USD.
The Bank of Japan (BoJ) is persisting in its ultra-loose monetary policy framework, as evidenced by its announcement of an unscheduled bond-purchasing exercise on Monday. This move is aimed at curbing the upward spiral in Japanese government bond yields.
The BoJ’s intervention in the bond market is part of its ongoing efforts to maintain monetary accommodation and stabilize financial markets. The central bank often engages in bond-purchasing activities to influence interest rates and ensure liquidity in the financial system.
The US Dollar Index (DXY) climbed to an 11-month high on the back of higher US Treasury yield. The 10-year US Treasury yield rose above its highest level since 2007, which stands at 4.67% at the time of writing.
Additionally, the mixed United States (US) data released on Monday, reinforced the Greenback. US ISM Manufacturing PMI improved to 49.0 in September from 47.6 in the previous reading, above the market consensus of 47.7. Manufacturing Prices Paid fell significantly from 48.4 to 43.8. The Employment Index rose from 48.4 to 51.2.
Federal Reserve (Fed) Governor Michelle Bowman stated on Monday that it sounds appropriate to raise the policy rate further and maintain it at restrictive levels for an extended period.
Fed Vice Chair for Supervision Michael Barr emphasized a cautious approach to monetary policy. Barr stated that the central bank should be mindful not just of how much interest rates will increase, but also of the duration they will be held at a sufficiently restrictive level. Despite this, Barr believes that the Fed can manage inflation without causing significant harm to the job market.
Traders await the US employment data, with the release of the ADP report on Wednesday and the Nonfarm Payrolls on Friday.