The USD/JPY reaching 126 yen this morning means that the Japanese currency appears to be at its weakest against the US in nearly 20 years.
The reason? The Bank of Japan's commitment to maintain ultra-loose monetary policy may contrast with the actions of the world's other major central banks, which appear to be normalizing monetary policy.
Yen falls, bank doesn't intend to react
Shunichi Suzuki, Japan's finance minister, declined to comment Tuesday on specific rates in currency markets. He said the government is keeping a close eye on the yen's trading and that excessive volatility in the exchange rate could have a negative impact on the economy and financial stability.
The Bank of Japan has repeatedly intervened to keep bond yields near zero. Recently, however, Shunichi Suzuki has cooled hopes for any government intervention in the currency markets, saying the central bank does not deal with exchange rates.
Since the beginning of the year, the yen appears to be the weakest among the world's major currencies and may be losing more than 8 percent to the USD. Since the beginning of April alone, JPY depreciation against the USD may have reached 3.5 percent.
Inflation 8.5 percent - rates are going up
In the United States, after the inflation reading, which rose to 8.5 percent in March, the US dollar appears relatively strong, and the exchange rate of the main currency pair remains in the region of 1.08.
The market may expect the Fed to decide on two consecutive interest rate hikes of 50 basis points in response to the rise in prices. Such a move is priced today with over 80 percent probability, and the next decision will come as early as May 4.
Oil: demand in China falls, demand in USA rises
Increased volatility may arise on the oil market. The futures contract for WTI crude oil rose to around $100 per barrel today, falling from the session high at $102.
Data from China's customs office showed that crude imports into the world's largest crude consumer fell for the second month in a row. That's likely because further restrictions due to coronavirus have reduced demand. Japan, the world's third-largest oil consumer and importer, saw its biggest monthly drop in machinery orders in February in nearly two years.
Fears persist that supplies could become even tighter because of the war in eastern Europe. OPEC has already warned that it will not be able to replace potential supply losses from Russia. At the same time, there could be strong demand for fuel in the U.S., where gasoline and distillate stocks fell by more than 5 million barrels last week.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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