Forex
IMF sees recent yen falls as reflecting fundamentals
© Reuters. FILE PHOTO: Banknotes of Japanese yen are seen in this illustration picture taken September 23, 2022. REUTERS/Florence Lo/Illustration/File Photo
By Leika Kihara
MARRAKECH, Morocco (Reuters) -The yen’s recent declines are driven by fundamentals and do not meet any of the considerations that would call for authorities to intervene in the currency market, a senior International Monetary Fund official said on Saturday.
“On the yen, our sense is that the exchange rate is driven pretty much by fundamentals. As long as interest rate differentials remain, the yen will continue to face pressure,” Sanjaya Panth, deputy director of the IMF’s Asia and Pacific Department, told reporters.
Authorities in Japan are facing renewed pressure to combat a sustained depreciation in the yen, as investors bet on higher-for-longer U.S. interest rates while the Bank of Japan remains wedded to its super low interest rate policy.
The IMF sees foreign exchange intervention as justified only when there is a severe dysfunction in the market, a heightening of financial stability risks, or a de-anchoring of inflation expectations, Panth said.
“I don’t think any of the three considerations are existing right now,” he said, when asked whether recent yen falls call for authorities to intervene in the currency market.
Japan bought yen in September and October last year, its first foray in the market to boost the currency since 1998, to stem sharp declines that eventually pushed the yen to a 32-year low of 151.94 to the dollar.
The dollar fetched 149.57 yen on Friday.
The BOJ has been a dovish outlier among a wave of central banks raising interest rates, even as cost-driven price rises have kept inflation above its 2% target for more than a year.
BOJ Governor Kazuo Ueda has stressed the need to keep rates ultra-low until inflation durably stays around 2% backed by robust demand and sustained wage increases.
Panth said there were more upside than downside risks to Japan’s near-term inflation outlook as the economy was running near full capacity, and price rises were increasingly driven by solid demand.
But he said it was “not yet the time” for the BOJ to raise short-term rates due to uncertainty on how slowing global demand could affect Japan’s export-reliant economy.
In the meantime, the BOJ should continue to take steps that allow long-term interest rates to move more flexibly to lay the groundwork for an eventual monetary tightening, he said.
The BOJ guides short-term rates at -0.1%. It also sets a 0% target for the yield under its yield curve control (YCC) policy. As rising inflation put upward pressure on yields, the bank loosened its tight grip on long-term rates by raising a de-facto cap for the yield in December last year and July.
“What it did in December and July to increase flexibility on long end of the yield curve, was very much steps in the right direction,” Panth said.
Investing.com – The US dollar edged lower Thursday as traders eased into the new year, but the greenback remained near the two-year high seen earlier in the week and was likely to stay supported near term given the more hawkish Fed stance and expectations for the incoming Donald Trump administration.
At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 108.215, but remained close to the two-year high touched on Tuesday.
Dollar to remain in demand in 2025
The index rose 7% in 2024 as traders drastically cut back Fed rate-cut expectations in the wake of the projections of the policymakers after the December policy-setting meeting.
The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year, a sharp reduction from the four cuts it had indicated in September.
In fact, markets are currently only pricing in 42 bps of cuts from the US central bank in 2025, with the return of Donald Trump to the White House adding a degree of uncertainty given his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary.
Focus turns to the release later in the session of weekly numbers as well as the December number, for clues towards the strength of the US economy.
Euro could be heading for parity vs dollar
In Europe, edged 0.1% higher to 1.0364, after dropping more than 6% in 2024.
Data released earlier Thursday showed that manufacturing activity in the eurozone declining at a faster rate at the end of the year, offering scant signals of an imminent recovery.
HCOB’s final , compiled by S&P Global, dipped to 45.1 in December, with the downturn broad-based as the bloc’s three largest economies – Germany, France and Italy – were stuck in an industrial recession.
Traders expected more interest rate cuts from the European Central Bank in 2025, with markets pricing in 113 basis points of easing, much more than the Federal Reserve.
This divergence in Fed & ECB policy “will push the euro to parity vs the dollar in the course of 2025,” said analysts at ABN Amro, in a note.
traded 0.2% lower to 1.2494, having fallen 1.7% last year, but was nevertheless the best-performing G10 currency versus the dollar.
UK rose in December, according to mortgage lender Nationwide, jumping by 0.7% in monthly terms during December, following a 1.2% increase in November.
The resilience of the UK housing market has surprised many given indications of weakening activity across the wider economy, with prices ending the year 4.7% higher than their level of December 2023, up from 3.7% in November – the highest annual growth rate since late 2022.
The held interest rates unchanged last month after consumer prices rose above target, and this central bank is likely to remain more cautious than its eurozone counterpart in 2025.
Slowing Chinese manufacturing growth
In Asia, rose 0.4% to 7.3265, climbing to its highest level in over a year after data showed that the country’s manufacturing sector grew less than expected in December.
The reading came just days after government PMI data also showed weaker-than-expected growth in the manufacturing sector.
The prints ramped up concerns over a slowing economic recovery in China, with recent stimulus measures having provided only limited support.
traded 0.3% lower to 156.82, slipping slightly after surging to a five-month high of nearly 158 in recent sessions on the back of a mostly dovish outlook for 2025 from the Bank of Japan.
Investing.com– Most Asian currencies moved in a flat-to-low range on Thursday as the prospect of slower U.S. interest rate cuts in 2025 kept traders averse to regional markets.
The Chinese yuan was among the worst performers for the day as purchasing managers index data showed support from stimulus measures rolled out in recent months was now petering out.
Regional trading volumes were still limited, as major markets such as Japan remained closed for the New Year holidays.
The dollar remained upbeat, benefiting from expectations of a slower pace of rate cuts by the Federal Reserve in 2025, while protectionist policies under incoming President Donald Trump are also expected to favor the greenback.
The and moved little in Asian trade, but were at their highest levels since November 2022.
Chinese yuan slips as manufacturing PMIs disappoint
The Chinese yuan weakened on Thursday, with the pair rising 0.3% to 7.3190 yuan- its highest level in over a year.
data showed that the country’s manufacturing sector grew less than expected in December as support from recent stimulus measures ran dry.
The reading came just days after data also showed weaker-than-expected growth in the manufacturing sector.
The prints ramped up concerns over a slowing economic recovery in China, with recent stimulus measures having provided only limited support. Increased trade headwinds under Trump are also expected to pressure the Chinese economy, although Beijing is expected to dole out more fiscal stimulus to offset this trend.
Asia FX nurses losses in 2024
Most Asian currencies steadied on Thursday after mostly logging losses through 2024. A bulk of these losses also came in recent months, as the prospect of slower rate cuts and more protectionist U.S. policies saw traders largely favor the greenback.
The Japanese yen was among the worst hit by this trade, as a mostly dovish outlook for 2025 from the Bank of Japan added to pressure on the currency. The yen’s pair moved little on Thursday after surging to a five-month high of nearly 158 yen in recent sessions.
The South Korean won firmed on Thursday, but was among the worst performing Asian currencies in 2024. The won’s pair rose nearly 15% in 2024, with heightened political turmoil in the country adding to pressure on the won.
The Singapore dollar’s pair fell 0.2% on Thursday, benefiting from gross that showed the economy grew more than expected in 2024, at 4%.
But slowed sharply in the fourth quarter, raising doubts over the island state’s economic outlook in the coming quarters.
The Australian dollar’s pair rose 0.5% after sliding to a more-than one-year low, while the Indian rupee’s pair fell 0.3% after hitting a record high of 86 rupees this week.
MEXICO CITY (Reuters) – Mexico’s peso weakened nearly 23% this year to close the final day of trading at 20.82 pesos per U.S. dollar on Tuesday, the currency’s deepest drop against the greenback since the 2008 global financial crisis.
The peso’s volatile year kicked off with months of steady gains until the days following June’s general election, which swept the leftist coalition led by the ruling Morena party to a resounding victory in the presidential race as well as large congressional majorities.
Ahead of the election, the Mexican currency traded in April at about 16.26 pesos per dollar to reach a nine-year high.
The election win for Morena paved the way for passage of constitutional reforms in September, including a major overhaul of the judiciary that critics argue will undermine the independence of the courts in Latin America’s second-biggest economy.
The election of U.S. President-elect Donald Trump in November exacerbated the peso’s rocky ride, amid his fresh tariff threats against Mexico, which sends around 80% of its exports to its northern neighbor.
Mexico’s main stock index also shed value during the year, dipping nearly 14% to close on Tuesday at 49,513 points, its steepest fall since 2018.
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