By HY Markets Forex Blog

The USD/JPY rose to its highest level in six years on Sept. 26.

Impact of Bill Gross
The currency pair reached 109.30, the highest since Aug. 29, 2008, according to The Wall Street Journal. One major piece of news that coincided with the dollar’s rise against the Japanese currency was the announcement that Bill Gross will be leaving Pacific Investment Management Co.

This investment manager runs the world’s largest bond fund, and news that its founder will be moving on sparked concerns that the company might focus on other investments instead of U.S. government debt, the media outlet reported. Amid these developments, yields on U.S. bonds rose and prices declined, which gave market participants added incentive to invest in dollar-based assets.

“Bill Gross’s departure took the markets by surprise,” Brad Bechtel, managing director at currency research and trading firm Faros Trading LLC, told the news source. “Pimco’s such a big firm, even small news there can move the markets. The fixed-income market reacted … and that drove the dollar.”

Strong US growth
Another factor that could have helped drive the USD/JPY higher on Sept. 26 was the announcement by the U.S. Commerce Department that the nation’s gross domestic product grew at an annualized rate of 4.6 percent during the second quarter.

This figure matched the median forecast of economists participating in a Bloomberg poll, and exceeded the previous figure of 4.2 percent provided by the government agency. The market experts taking part in the survey contributed estimates for second-quarter growth ranging between 3.4 and 5 percent.

The report credited several factors – including rising imports, increasing consumption and stronger business spending – for driving the upward revision in economic growth.

More specifically, corporate purchases of equipment rose at an 11.2 percent annualized rate, while business investment increased 9.7 percent, Bloomberg reported. Alternatively, outlays for structures gained 12.6 percent. 

Improving economic conditions
The recent gains in the U.S. dollar happening at the same time the government releases robust GDP figures could be part of a broader trend, as the currency has risen in recent months as economic data has steadily grown stronger, according to The Wall Street Journal.

The labor market is one part of the economy that has shown significant improvement, as the nation’s employers have created new positions and pushed the jobless rate steadily lower in 2014.

Some market experts have emphasized that robust job creation is a necessary component of a self-sustaining recovery, as a steady increase in employment would likely bolster consumption.

Expert: Consumer spending could rise
Brittany Baumann, an economist at Credit Agricole CIB in New York, which accurately predicted the GDP figure for the second quarter, weighed in on the situation when speaking with Bloomberg.

“Consumer spending should benefit from strengthening labor conditions and improved financial conditions,” while businesses should keep buying equipment, she told the news source.

Markets look to coming reports
Now, many market participants are eagerly awaiting the next set of economic data, such as the Labor Department’s September jobs report and figures on personal consumption expenditures, The Wall Street Journal reported.

Market participants are currently speculating on how the next jobs report will turn out, betting that it will show more robust growth in September than in August, according to the news source.

These numbers could prove crucial, as the Federal Reserve has stated repeatedly that the strength of the labor market will have a key impact on its policy decisions. Janet Yellen, chair of the central bank, has stated that the job market’s vigor is based on more than just the unemployment rate.

Fed speculation
The financial institution has tapered most of its quantitative easing, and now market participants worldwide have started scrutinizing the statements of central bank officials in an effort to get a better sense of when the Fed will start pushing its benchmark rates higher.

As the financial institution comes closer to fulfilling its dual mandate, its officials are considering when to start raising rates, Bloomberg reported. The job market conditions are far from perfect, Yellen emphasized during a speech she gave after the Fed’s latest policy meeting on Sept. 17.

“The labor market has yet to fully recover,” she said at a press conference after the meeting ended. “There are still too many people who want jobs but can’t find them.”

While many market participants are speculating that the financial institution will start increasing these borrowing costs halfway through next year, a more aggressive timeline could draw investors to U.S. assets, pushing the dollar higher, according to The Wall Street Journal.

Investors who trade forex might benefit from knowing about the USD/JPY surging to a six-year high on Sept. 26. In addition, being aware of the major developments that coincided with this rise might help them make more-informed decisions.

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