USD/JPY rose sharply to a 5-year high thanks to the strengthening prospect of the Fed's rate hike at the next March meeting.
The US dollar strengthened in five consecutive trading sessions against the Japanese Yen and continued until Wednesday (05/January) morning. USD/JPY is now even at 116.16, topping its highest level since March 2017.
Fed Rate Hike Prospects Are More Open,
The sharp strengthening of the US Dollar against the Yen is actually inseparable from the recovery of risk-on sentiment. Market participants see that the Omicron variant has no potential to threaten the global economy even though it has spread very quickly in recent times. This optimism is based on a recent study which revealed that the Omicron variant only attacks the bronchi.
The effectiveness of the Omicron variant is said to decrease dramatically when it reaches the lungs, so it can be concluded that the COVID-19 variant from South Africa will not take many lives. This condition is positive news for market participants who were previously worried about the impact of Omicron on the economy and the prospect of the Fed Rate Hike.
“Certainly USD/JPY broke the key resistance and hit a 5-year record high, all driven by US bond yields. We have entered 2022 and markets are poised to see higher Fed rates being the main catalyst driving the dollar against the Yen, said Joe Manimbo, market analyst at Western Union Business Solutions.
The 5-year US bond yields recently reached their highest level since February 2020. The increase in US bond yields reflects market participants are increasing their bets on the prospect of a Fed rate hike.
Last night's CME FedWatch data showed a projected Rate Hike of 25 basis points in March with a 60 percent probability. Meanwhile, Neel Kashkari argues that the US central bank needs to raise interest rates twice in 2022. In fact, the Minneapolis Fed President is known as one of the top dovish Fed officials.
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