USD/JPY plunges to 148.00 as Japanese Yen strengthens on hawkish BoJ bets

• USD/JPY falls vertically to 148.00 as hawkish BoJ bets strengthen the Japanese Yen outlook.
• BoJ Nakagawa said a positive cycle for wages and inflation seems now achievable.
• Higher expectations for Fed rate cuts in June have built downward pressure on the US Dollar.

The USD/JPY plummets to 148.00 in Thursday’s European session as expectations for the Bank of Japan (BoJ) lifting negative interest rates have escalated. Increased bets for the BoJ turning to policy normalization due to improved wage outlook have strengthened the Japanese Yen.

Japan’s administration and some BoJ policymakers admit they expect a positive wage cycle, which could keep inflation steadily above the 2% target. In the Asian session, BoJ board member Junko Nakagawa said, “Prospects for the economy to achieve a positive cycle of inflation and wages are in sight.”

On Wednesday, Jiji News Agency reported that some members of the Bank of Japan’s (BoJ) Monetary Policy Committee (MPC) would favor an exit from an ultra-loose monetary policy stance at the March policy meeting. Also, BoJ board member Hajime Takata said last week that the central bank’s goal of maintaining inflation above 2% on a sustainable basis is ‘finally in sight’.

On the contrary, BoJ Governor Kazuo Ueda believes that the central bank will not abandon its ultra-dovish policy stance until he is convinced that inflation will sustainably remain above 2%.

Meanwhile, weak US Dollar has also resulted in downward pressure on the USD/JPY pair. The US Dollar Index (DXY) hovers near a monthly low of around 103.20 as expectations for the Federal Reserve (Fed) reducing interest rates in the June policy meeting have increased. In the semi-annual report to Congress, Fed Chair Jerome Powell said, "It will likely be appropriate to begin dialing back policy restraint at some point this year."

Going forward, the US Dollar will dance to the tunes of the United States Nonfarm Payrolls (NFP) for February, which will be published on Friday. The economic data will provide fresh insights into the labor market conditions.