On May 27, as Japanese government bond yields climbed to near three-decade highs, Bank of Japan Deputy Governor Himino Ryozo stated on Tuesday that maintaining market confidence through appropriate policy adjustments is crucial. He explicitly highlighted that developments in the Middle East will be a key factor in determining the timing and pace of interest rate hikes. Regarding the recent rise in Japanese bond yields, Himino noted that this is likely part of a global surge in yields, driven by market concerns that escalating fuel costs due to Middle East conflicts could accelerate global inflation. "The key is to sustain market confidence that the central bank will adjust the degree of monetary easing at an appropriate pace in the future, based on economic, price, and financial conditions, to properly control inflation," Himino said. Additionally, he emphasized that given Japan's real interest rates remain extremely low, the central bank expects to continue raising policy rates. However, "the timing and pace of adjustments will be carefully determined by assessing the probability of achieving the baseline scenario and related risks, after thoroughly analyzing how the Middle East situation impacts Japan's economy and prices."
Furthermore, former New York Fed President William Dudley recently warned in a media interview that after failing to meet the 2% inflation target for an extended period, the Federal Reserve faces a significant risk of losing its credibility in fighting inflation. Dudley suggested that the potential for President Trump's nominee for the new Fed Chair, Christopher Waller, to cut rates against the economic backdrop under presidential pressure could exacerbate the Fed's credibility crisis. Speaking on a program on Tuesday, Dudley stated, "Our inflation data have been significantly above the Fed's 2% target for over five years." "There is a risk that inflation expectations could ultimately become completely unanchored." These latest remarks from the former New York Fed president underscore the series of major challenges facing the incoming Fed Chair. Waller is expected to preside over his first Federal Open Market Committee (FOMC) meeting next month.
Key data to watch today include the U.S. ADP Employment Change for the week ending May 9, the U.S. Richmond Fed Manufacturing Index for May, and the U.S. Dallas Fed Services Revenue Index for May.
Gold/USD Gold declined in choppy trading yesterday, closing slightly lower on the daily chart, with the current exchange rate hovering around 4496. Continued expectations of Federal Reserve rate hikes weighed on gold, alongside some pressure from robust U.S. economic data released during the session. Additionally, fading optimism over a potential Middle East agreement further contributed to the downward pressure on gold. Support is seen near 4450 today, with resistance around 4550.
USD/JPY USD/JPY edged higher in volatile trading yesterday, closing modestly up on the daily chart, with the current exchange rate near 159.30. The primary driver was a stronger U.S. dollar, supported by positive economic data, heightened expectations for Fed rate hikes, and safe-haven demand. However, concerns over potential Japanese intervention in the currency market and expectations of Bank of Japan rate hikes limited the pair's upside. Resistance is anticipated near 160.00 today, with support around 158.50.
USD/CAD USD/CAD advanced in choppy trading yesterday, closing slightly higher on the daily chart, with the current exchange rate around 1.3810. The main factors supporting the pair were a stronger U.S. dollar, buoyed by fading Middle East optimism and solid economic data, along with expectations for Federal Reserve rate hikes. Nonetheless, a rebound in crude oil prices capped the pair's gains. Resistance is seen near 1.3900 today, with support around 1.3700.
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