Interest Rates and Inflation: The Drivers of Recent USD/JPY Market Trust Company Trust Company
6 min readMar 26, 2024


In the last month, USD/JPY has risen and fallen amid major economic and policy changes in the US and Japan. Below, we will look at these moves and the changes that led to the ups and downs.

Stablecoin prices can be influenced by various factors, with the market trend of the underlying fiat currency being a critical consideration. Our blog tracks and updates major currency price movements while delving into the policies and economic factors that propel them. Follow us on @GMOTrust to stay updated.

Recent changes in the USD/JPY

In March, USD/JPY experienced almost equal periods of rising and falling. After fluctuating, the exchange rate has climbed to a higher position than it was when the month began. There have been several reasons behind the swings during the month.

USD/JPY for the last 30 days. Source: TradingView

Rising Yen on Policy Speculation

The most recent drop in USD/JPY came as the yen strengthened on policy speculation. Early in the month, there was speculation that the Bank of Japan might soon be ready to start hiking interest rates after years of negative interest rates. Consequently, the yen strengthened, pushing the pair down.

Markets gained confidence that the BoJ was ready because conditions aligned for a policy shift. Japan’s economy avoided a recession and recorded growth, indicating increasing demand. With growing demand comes higher inflation. Additionally, investors were more confident that wages in Japan would rise, allowing the central bank to raise rates. This was confirmed after the wage negotiations in Japan, where big companies agreed on the biggest wage hike in over a decade.

US Economic Indicators and Fed’s Stance Weaken the Dollar

As this happened, data in the US revealed some weakness in the labor market, which led to an increase in rate-cut bets and a decline in the dollar. Moreover, Powell delivered a dovish testimony to Congress, further weakening the dollar and fueling the drop in USD/JPY.

A stronger dollar and a weaker yen caused the most recent rise in USD/JPY. Initially, the pair rose after data in the US revealed hotter-than-expected inflation. Consumer and producer prices rose more than expected, raising fears that the Fed might further delay rate cuts. Consequently, the dollar strengthened, and Treasury yields rose, pushing USD/JPY higher.

Inflation Fears and BoJ’s Rate Hike Boost USD/JPY

The pair was propelled higher after the Bank of Japan policy meeting. The yen tumbled after the BoJ hiked rates out of negative territory. This was the opposite reaction, showing traders had already priced in such a move.

Additionally, the yen weakened because the BoJ pledged to continue supporting the economy with ultra-easy monetary conditions. Moreover, markets believe the next hikes will be slow, gradual and less aggressive than expected.

The latest policy and economic changes in the US and Japan have caused significant market volatility and fluctuations. Below are some of the significant changes.

Policy and Economic Updates from the US

There were few policy changes in the US as the Fed held rates at the most recent policy meeting.

However, the Fed’s policy outlook changed when Powell testified before Congress. Notably, he confirmed that the Fed would cut rates by the end of 2024 and mentioned a cautious yet flexible approach toward rate adjustments. This helped in clarifying the rate cut outlook.

When the Fed held its policy meeting last week, policymakers agreed to maintain current rates. Moreover, Powell kept his dovish tone, saying there would be three rate cuts in 2024.

The two major economic releases in the US included the jobs and the inflation reports. The jobs report revealed a mixed picture, with employment rising while unemployment increased in February. However, investors focused on the signs of weakness in a labor market that has shown resilience despite high interest rates. As a result, rate-cut bets increased.

The US also released the consumer inflation report, which was higher than expected. Consumer prices in the US rose more than expected in February, raising concerns of persistent inflation.

Shift in Japan’s Monetary Policy and Economic Landscape

Policy changes in Japan include the most recent shift from negative to positive interest rates. At its last meeting, the BoJ hiked interest rates for the first time in 17 years, making a big change in its monetary policy. The shift from negative interest rates means Japan’s economy is no longer struggling with deflation. However, Japan’s economy remains fragile. Therefore, the central bank will go slow on more rate hikes. This might disappoint some market participants who expected an aggressive shift that would close the interest rate differential gap with the US. Still, it is a big change that might strengthen the yen, pushing the USD/JPY exchange rate lower in the long run.

The major economic change in Japan was the recent wage increase, which allowed the central bank to hike interest rates. Major companies, including Toyota, agreed to raise wages, putting more money in people’s pockets and driving spending. This will, in turn, spur economic growth and increase inflation.

Monetary Policy Divergence and Its Impact on USD/JPY Outlook

In the coming months, the outlook for monetary policy could diverge between Japan and the US. As the BoJ starts its rate hike cycle, investors will look for hawkish remarks from policymakers that will likely strengthen the yen. On the other hand, the Fed is getting more dovish in the US, which will likely weigh on the dollar. Consequently, USD/JPY could fall.

Investors will now focus on Japan’s inflation data. Moreover, this month’s jobs and inflation reports from the US will shape the outlook for Fed rate cuts.

Technical Analysis: From Bearish to Bullish Bias

USD/JPY technical outlook

On the technical side, USD/JPY has broken above the 150.75 key resistance level after bulls reemerged at the 146.50 support level. This sudden shift in sentiment led to a whiplash move that saw the price break back above the 22-SMA. Consequently, the bias has gone from bearish to bullish.

However, although the price has made a higher high above the 150.75 resistance level, the RSI shows weaker bullish momentum. The last time the price tested this resistance level, the RSI was higher than it currently is. This indicates that bulls have weakened and might allow bears to take over.

Furthermore, the price currently trades near a historic reversal level at 152.02. Therefore, there is a high chance that bears will resurface to push the prices lower, as they have done many times before. The price must make new lows below the 146.50 support level to confirm a reversal.

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