Author: admin

  • There’s a huge divergence between the US-Japan yield differential and the USDJPY pair

    Major currency pairs are driven primarily by yield differentials between the respective countries. The basic idea is that investors care about the return they can earn on cash or bonds in one country versus another. So, if US yields are higher than Japanese yields, holding dollars is more attractive than holding yen, and this capital flow can push up the USDJPY pair. Conversely, if Japanese yields are higher than US yields, holding yen becomes more attractive.

    Bond yields are mainly driven by expectations of monetary policy, so it’s not the current yield that investors care about but the future yield based on central bank policy expectations. The yield differential is not the only driver of currency pairs but it’s the most influential one and explains 90% of FX moves.

    Now, in the picture below, you can see that there’s currently a huge divergence between the US-Japan yield differential and the USDJPY pair.

    The last time we had such a big divergence was in July 2024. The FX pair eventually caught up with the yield differential with an aggressive move. It started with an intervention on July 11 that propped up the yen. Then we got reports of a potential BoJ rate hike. Then we got the “unexpected” BoJ hike on July 31. And finally, we got the growth scare on August 2 triggered by a weak US NFP report.

    Today, the divergence has been driven by a few factors but the main ones have been overstretched US dollar shorts and BoJ pushbacks on rate hikes. The US dollar shorts started to get unwound as we reached the peak in rate cuts pricing for the Fed and some better than expected US data propped up the dollar further. Now, with the US government shutdown we are not getting the data needed to reprice further and if we get another soft NFP report or a benign US CPI, then the pricing will not change much.

    On the Japanese yen side, the BoJ surprised at the last meeting as two members voted for a rate hike and gave the JPY a boost. At the press conference though, Governor Ueda played down the dissenting votes and the yen eventually erased the gains. Lastly, the victory of Takaichi over the weekend sinked the JPY further as markets expected more expansionary fiscal policy and another delay in rate hikes.

    The markets might be having an Abe-Kuroda deja-vu, but today’s context is different in my opinion. In fact, we are not coming out of a global financial crisis, and Japan is not fighting against deflation. Just these two are enough to see that the context is very different. What weighed on business sentiment this year were Trump’s tariffs.

    Despite the tariffs though, the Japanese Q2 growth was revised sharply higher recently and the Tankan survey (which is what the BoJ has been focusing on) showed that confidence among big Japanese manufacturers improved for the second
    straight quarter and firms maintained their upbeat spending plans. Moreover, Takaichi is expected to increase government spending and that should support growth further.

    There are expectations of a JPY intervention given the aggressive selloff this week. This is something to watch out for as it could mark a short-term top in the USDJPY pair. The BoJ might also decide to pre-emptively hike rates at the upcoming meeting, so keep an eye on the news as we could get “leaks” before the actual meeting and the market will of course position into the rate hike in advance. Right now, the market is pricing just a 27% probability of a hike in October and less than 50% chance of a rate hike before year-end.

    This article was written by Giuseppe Dellamotta at investinglive.com.

  • Adviser to Japan’s Takaichi says BOJ should be careful about raising interest rates

    • It is not clear when next rate hike would be
    • But Takaichi’s approach is likely to be one that warrants caution
    • USD/JPY unlikely to surge above 155 as inflation expectations remain low
    • Weak yen is positive for the economy when in the recovery phase

    It’s not his first warning to the BOJ as he mentioned earlier this week that October would be “too early” for the next rate hike. In any case, the quick decline in the Japanese yen currency won’t help Takaichi’s case in wanting a slower pace on rate hikes. So, there’s a balance to be struck. But it seems that they want to at least get markets to know that they have a watchful line in the sand around 155 for now.

    This article was written by Justin Low at investinglive.com.

  • BoE’s Mann: Inflation scarring still weighing on consumption, justifies policy restraint for longer

    BoE policymaker Catherine Mann cautioned in a speech today that monetary policy must remain restrictive despite signs of weak consumption, arguing that high inflation has scarred UK consumers and continues to suppress spending. “If the consumption gap was my only concern, reducing the restrictiveness of monetary policy would be appropriate,” she said. “However, in light […]

    The post BoE’s Mann: Inflation scarring still weighing on consumption, justifies policy restraint for longer appeared first on Action Forex.

  • VT Markets Redefines the Future of Finance at Dubai Week 2025

    VT Marketshas successfully concluded its inaugural VT Market Dubai Week 2025, a curated event that combined client engagement, industry leaders sharing sessions, and exclusive experiences alongside its Elite sponsorship at Forex Expo Dubai. The debut event highlighted the broker’s growth in the region and pushing forward into the future of trading.At Booth 57, VT Markets showcased a cutting-edge, tech-forward experience that captivated thousands of visitors. The booth was thoughtfully designed with sleek, modern aesthetics that reflected the brand’s commitment to innovation. Visitors were drawn to interactive displays and live demonstrations of the award-winning MetaTrader 4 and MetaTrader 5 platforms. The space was designed to encourage hands-on engagement, with dedicated stations where traders could explore platform features, receive personalized guidance, and experience the tools that drive their trading success. This dynamic environment reinforced VT Markets’ vision of the future of trading – accessible, innovative, and client-focused. A keynote session on the future of AI, presented by Ross Maxwell, Global Strategy Operations Lead, drew strong attendance, offering traders practical insights on navigating today’s fast-moving markets.

    Ross Maxwell, Global Strategy Operations Lead at VT Markets, shared during his session: “The transformative power of AI is already reshaping the future of trading, particularly in how we forecast and respond to market dynamics. The real breakthrough comes when human expertise and AI intelligence work hand in hand to overcome traditional challenges. Those who embrace this synergy will remain ahead of the curve- AI is here to empower traders, not to replace them.”

    As part of its expansion strategy, VT Markets Dubai, operates under a Category 5 licence from the UAE Securities and Commodities Authority (SCA) The licence provides clients and partners with greater confidence in VT Markets’ long-term presence in the Middle East and reaffirms the company’s commitment to operating under the highest international standards.

    The week also featured a series of exclusive client experiences, including a yacht party around the marina, Gala dinner and panel discussion on the AI revolution & investment future in the UAE at the prestigious Armani Ballroom, and the official opening of the VT Markets’ new Dubai office in the city’s Central Business District. These activities reflected VT Markets’ dedication to nurturing lasting relationships and creating memorable opportunities for its global client base.

    With VT Markets Dubai Week 2025 setting a strong precedent, VT Markets is poised to deepen its regional footprint, strengthen its partnerships, and continue redefining the standards of client engagement in the financial services industry.

    This article was written by IL Contributors at investinglive.com.

  • Fed’s Williams backs further rate cuts this year

    • Does not believe the economy is on the verge of a recession
    • Slowdown in jobs and firms’ hesitancy to hire warrants attention
    • My view is that tariffs have increased imported goods prices
    • But don’t see any signs of second-round effects that could amplify effects of tariffs on inflation
    • Underlying inflation seems to be moving gradually towards 2%
    • We have a reasonably good picture of what’s happening, especially around the things that matter the most to us
    • It is appropriate for rates to go back to neutral setting
    • Political figures have their views on the Fed but it is really important for us to get our job done as best as we can

    Williams’ argument relates more to the narrative that the labour market is softening while also brushing aside the potential stickiness of tariffs inflation. This is certainly an interesting one particularly after having seen what the FOMC minutes provided yesterday here. Williams tends to be taken in the same light as Powell, so the comments here certainly are standing out a fair bit. The dollar has lost some ground on the day as such.

    This article was written by Justin Low at investinglive.com.

End of content

End of content