Last week, the focus was on Chairman Powell’s speech on Friday at 23:00.

The key point was whether he would declare a September interest rate cut in Jackson Hole. As if in response to market participants’ expectations, he stated unequivocally that “the time has come to cut the key policy rate”. However, the FOMC meeting summary suggests that the start of the September rate cut was almost definitive.

Market expectations were for a 0.5% rate cut in September, but the US recession probability has also decreased as retail sales were much stronger than expected, and the rate is likely to settle for a 0.25% cut. However, as this is a major milestone in the process of US monetary policy finally shifting towards a cut, the market reaction was larger than expected and the USD/JPY decline was surprisingly large.

The Jackson Hole meeting is a gathering of central bank governors from major economies, but Japan’s Governor Ueda was attending a closed session of the House of Representatives and the House of Councillors. During the lengthy review, Governor Ueda explained that ‘there is no change in our basic stance of adjusting the degree of monetary easing once the economic and price outlook is generally realised’, indicating no change in the stance expressed at the press conference following the Bank of Japan policy meeting on 31 July. Deputy Governor Uchida was quite hawkish, depending on your point of view, when he said that the Bank would not raise interest rates during major market fluctuations, but that his statement was appropriate and that the Bank would proceed with policy adjustments once the price outlook was realised.

The proposed takeover of Seven & i by Canadian retail giant Alimantasion Kushtar may also have contributed to the yen’s strength. If the takeover were to materialise, it would probably result in a yen purchase of over JPY 6 trillion. However, even if the M&A deal does materialise, it will be too soon for the market to settle the purchase price and it will only be a temporary market reaction, but a huge acquisition deal will be materialised in the market and the dollar will weaken further.