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The Japanese yen is gaining support as a safe-haven asset amid concerns about slowdown of economic growth in China, the deterioration of U.S.-China relations, and geopolitical tensions. This week, China's ambassador to Washington stated that China does not want a trade or technological war, but if the U.S. imposes additional restrictions on the import of equipment for producing advanced chips, they will have to respond.
Moreover, geopolitical tensions are increasing as the Russian Defense Ministry announced that from Thursday onwards, any ships heading to Ukrain's Black Sea ports will be regarded as potential carriers of military cargo and participants in the conflict.
On the other hand, regarding the U.S. dollar, markets are anticipating a rate hike on July 26, but are currently uncertain due to assumptions that this will be the last increase in this cycle, given recent inflation indicators aligning with a softening U.S. monetary policy.
However, the dovish statements made earlier this week by Bank of Japan Governor Kazuo Ueda is also worth noting. After the G20 meeting in India, Ueda expressed opposition to changes in the Bank of Japan's policy and hinted that they should stick to an ultra-loose monetary policy for now, as they are still far from the target inflation rate of 2%.
Accordingly, the main focus of decision-making will still be on the publication of Japan's core consumer price index, which was released overnight.
Furthermore, with no significant economic data from the U.S. influencing the market today, the aforementioned mixed fundamental background may deter traders from placing aggressive bets ahead of key central bank events scheduled for next week. The Federal Reserve will announce its decision on interest rates at the end of its two-day monetary policy meeting on Wednesday. Then, on Thursday and Friday, the Bank of Japan will hold its meetings, which will also help investors determine the short-term trajectory of the USD/JPY currency pair.
