Summary
The disparity in monetary policy between the US and Japan remains stubbornly wide, with the Fed dampening expectations of a rate cut and the BOJ pushing back details of plans to reduce JGB purchases. In Japan, expected inflation rates are rising while the real interest rate is declining, creating an environment conducive to yen selling. The sense that this situation will not change for some time accelerated yen weakness and the USD/JPY rose above 161. The direction of monetary policy in Japan and the US will be important in July as well given the yen selling environment is likely to persist in the near term. The key questions will be whether the Fed moves to cut rates due to recent signs of a slowdown in the economy and inflation, and whether the BOJ announces a detailed plan to reduce JGB purchases and moves to raise rates at the same time.
