Forex
Japan will stop yen decline beyond USD/JPY 145, most economists say
Japan’s government and central bank will act to stop the yen’s decline if it depreciates to the 145 per U.S. dollar level, more than half of economists polled.
Market participants closely watch how the government and the Bank of Japan (BOJ) respond to currency moves, following their meeting last month when the yen neared a six-month low and ahead of the central bank’s rate review concluding on Friday.
While 96% of the poll’s respondents expect the BOJ to maintain its policy this week, around half see a rollback of easing, including a tweak to the yield curve control (YCC) scheme, in either July or September.
Fifteen of 28 economists (54%) said the government and the BOJ will take steps such as issuing a warning or intervening into the currency market once the yen weakens beyond 145 per greenback, the June 8-13 poll found. Another 12 said 150 yen is the trigger.
“Domestic firms’ weak-yen tolerance has improved thanks to strong tourist demand, but a sharp yen decline would torment manufacturers because soft overseas demand has made the benefit of a weak yen hardly visible”, said S&P Global Market Intelligence’s Principal Economist Harumi Taguchi.
Analysts said the policymakers may weigh in if the yen weakens quickly, or if the depreciation is feared to prolong domestic inflation and squeeze households’ purchasing power.
In a separate question on the weak yen’s impact on BOJ policy, nine economists (31%) said the central bank’s decisions could be swayed by a yen depreciation beyond 145 per dollar. Ten said 150 is the threshold, three opted for 155 and two chose 160 or further.
The BOJ, the finance ministry and the Financial Services Agency held a three-party talk on May 30, similar to another one last year that served as a prelude to Japan’s first dollar-selling, yen-buying intervention in 24 years in September.
The yen hit a 32-year low near 152 to the dollar in October but then reversed course, as the government carried out additional interventions and the BOJ jolted the market with a surprise YCC tweak in December. The currency traded at 140.885 per dollar around midday on Thursday.
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The BOJ is expected to maintain ultra-loose monetary policy at the latest two-day meeting from Thursday, sources familiar with the bank’s thinking have told Reuters.
In the poll, all but one – JP Morgan – out of 28 economists corroborated the view, citing an improved bond market functionality and Governor Kazuo Ueda’s accommodative remarks so far.
Still, nearly two-thirds of respondents predicted the BOJ would scale back the current policy this year, although the margin has shrunk from 71% in last month’s survey. The ratio of economists expecting an unwinding in July was largely unchanged at around 43%.
“July could be the best timing to tweak YCC, at the time of the BOJ’s quarterly inflation forecast release and before the likely U.S. recession later this year”, said Hiroshi Watanabe, senior economist at Sony Financial Group, who expects the BOJ to double the cap around the 10-year yield target to 1.0%.
Also, more than 70% of the economists polled said Japan’s 2024 wage growth will likely remain at a level that is sufficient for the BOJ to consider ending or tweaking YCC.
Cautious Japanese firms offered annual wage hikes of more than 3% this year, a three-decade-high, given the need to lure workers amid high inflation and a labour crunch. BOJ’s Ueda has said an end to easy policy would depend on the economy achieving 2% inflation coupled with pay growth.
Forex
Dollar edges lower as yields slips; hefty annual gain likely
Investing.com – The US dollar slipped slightly Monday, as US bond yields retreated, but remained near recent highs as the end of the year draws near.
At 04:5 ET (09:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 107.690.
However, the index was still on course for monthly gains of over 2%, bringing year-to-date gains to almost 7%.
Dollar on course for hefty annual gains
The dollar has been helped by rising US Treasury yields, with the benchmark 10-year note hitting a more than seven-month high last week. This yield, however, slipped by to 4.599% on Monday.
The election of Donald Trump as the new president also gave the dollar a boost as his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary, and are likely to keep the Federal Reserve from cutting interest rates rapidly next year.
The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year earlier this month, and markets are now pricing in just about 35 basis points of easing for 2025.
Trading ranges are likely to be tight this holiday-impacted week, and the focus will be on weekly numbers on Thursday and data a day later, as well as comments from FOMC member .
Euro gains after Spanish inflation
In Europe, rose 0.1% to 1.0439, bouncing slightly after data showed that Spain’s annual EU-harmonized rose to 2.8% in December, up from the 2.4% figure recorded in November.
The cut interest rates earlier this month and signaled more cuts ahead as economic growth in the region stagnates.
However, the next interest rate cut could be longer in coming after a recent uptick in inflation, ECB Governing Council member Robert Holzmann was quoted as saying on Saturday.
accelerated in November to 2.2% from 2.0% a month earlier and above the ECB’s 2% target rate.
traded 0.1% higher to 1.2595, with little in the way of UK economic data to study ahead of Thursday’s release.
That is expected to show that the country’s manufacturing sector remained firmly in contraction in December, after data showed that Britain’s economy failed to grow in the third quarter.
Bank of England policymakers voting 6-3 to keep interest rates on hold at the meeting earlier this month, a more dovish split than expected, suggesting rate cuts will continue next year.
Yen remains weak; risk of intervention supports
In Asia, traded largely flat at 157.76, around five-month highs for the pair, with only the risk of Japanese intervention preventing another test of the 160 level last seen in July.
The signaled that it will take its time to consider more interest rate hikes after the central bank held interest rates steady at 0.25% at this month’s meeting.
rose 0.2% to 7.3136, remaining close to a one-year high as the prospect of more fiscal spending and looser monetary conditions in the coming year weighed on the currency.
Forex
Dollar slips, but on track for hefty gains in 2024
Investing.com – The US dollar edged lower Tuesday, but was still on course to record hefty gains in 2024 given the more cautious stance by the Federal Reserve regarding rate cuts and expectations for the incoming Donald Trump administration.
At 05:35 ET (10:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 107.830, but remains just below the two-year high seen earlier this month.
The index was still on course for monthly gains of around 1.5%, bringing year-to-date gains to almost 7%.
Dollar in demand
The Fed’s recent signal of fewer cuts in 2025 has provided renewed strength to the dollar, pushing the benchmark to a more than seven-month high last week.
The US central bank projected just two 25 bp rate cuts in 2025 at its last policy meeting of the year earlier this month, a sharp reduction from the four cuts it had indicated in September.
The election of Donald Trump as the new president also gave the dollar a boost as his policies of looser regulation, tax cuts, tariff hikes and tighter immigration are seen as both pro-growth and inflationary, and are likely to contribute towards the Fed’s cautious stance.
Trading volumes are likely to be limited Tuesday, ahead of Wednesday’s holiday, and the focus will then be on weekly numbers and data later in the week, as well as comments from FOMC member .
Euro looks to ECB rate cuts
In Europe, edged higher to 1.0409, trading in a tight range with the German market on holiday.
The pair is set for a decline of just under 6% this year, with the likely to cut interest rates more sharply than the Federal Reserve in 2025.
The ECB cut interest rates earlier this month and signaled more cuts ahead as economic growth in the region stagnates, while the US central bank recently cut its projection for rate reductions in the new year.
The eurozone economy could also suffer from President-elect Donald Trump’s trade policies, given the prospect of tariff hikes and the potential of a trade war.
traded 0.1% lower to 1.2539, moving in a tight trading range ahead of Thursday’s release.
That is expected to show that the country’s manufacturing sector remained firmly in contraction in December, after data showed that Britain’s economy failed to grow in the third quarter.
Chinese manufacturing activity expands in December
In Asia, rose 0.6% to 7.3443, after China’s expanded for a third straight month in December as a raft of fresh stimulus measures continued to provide support, purchasing managers index data showed on Tuesday.
However, the rise was slightly lower than market expectations and below the previous month’s reading.
Markets are holding out for more clarity on Beijing’s plans for stimulus measures in the coming year. Recent reports suggested that the country will ramp up fiscal spending to support economic growth.
traded 0.1% higher to 156.92 on Tuesday after it reached a five-month high in the previous session, with the pair up more than 11% over the course of the year.
The signaled that it will take its time to consider more interest rate hikes after the central bank held interest rates steady at 0.25% at this month’s meeting.
Forex
Asia FX set for yearly losses as strong dollar weighs; China factory data in focus
Investing.com– Most Asian currencies edged lower on Tuesday and headed for yearly losses as the dollar remained strong heading into 2025, while the Chinese yuan weakened after data showed the country’s factory activity expanding at a slower pace.
The was 0.1% weaker in Asian trade but remained near a 2-year high it touched earlier in the month. The also ticked lower.
Asian currencies have weakened sharply this year as the Federal Reserve’s interest rate outlook, and fears about a potential U.S-China trade war under Donald Trump’s administration, have eroded risk sentiment.
The Fed’s recent signal of fewer cuts in 2025 has provided renewed strength to the dollar and created downward pressure on Asian currencies.
Chinese yuan slips as factory activity expands at a slower-than-expected pace
The Chinese yuan’s onshore pair rose 0.2% on Tuesday, while the offshore pair was largely unchanged.
China’s expanded for a third straight month in December as a raft of fresh stimulus measures continued to provide support, purchasing managers index data showed on Tuesday. However, the rise was slightly lower than market expectations and below the previous month’s reading.
Markets are holding out for more clarity on Beijing’s plans for stimulus measures in the coming year. Recent reports suggested that the country will ramp up fiscal spending to support economic growth.
Asian currencies set for yearly declines
The Japanese yen’s pair fell 0.3% on Tuesday after it reached a five-month high in the previous session. The yen was set to lose more than 10% against the U.S. dollar for the year.
The Singapore dollar’s pair was largely unchanged but headed for a yearly rise.
The Australian dollar’s was slightly lower on Tuesday.
The Indian rupee’s pair inched up 0.1%, and was on track to rise more than 3% this year. The rupee has been hitting fresh record lows against the U.S. dollar this month.
The Thai baht’s pair rose 0.3%, while the Indonesian rupiah’s pair gained 0.2% on Tuesday.
South Korean won slips amid deepening political unrest
The South Korean won’s pair edged up 0.1% on Tuesday. The won has weakened nearly 6% against the U.S. Dollar in December, which saw a failed imposition of martial law in the country.
The won is the worst-performing currency amongst its Asian peers, tracking an over 12% decline in 2024.
In the latest updates, A South Korean court approved an arrest warrant on Tuesday for President Yoon Suk Yeol, who has been impeached and suspended from office following his December 3 decision to impose martial law.
The Corruption Investigation Office for High-ranking Officials (CIO) stated that the Seoul Western District Court granted the warrant sought by investigators probing Yoon’s brief imposition of martial law.
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