Forex
Yen dives as BOJ plays down chance of hikes, soothing markets
By Harry Robertson and Ankur Banerjee
LONDON/SINGAPORE (Reuters) -The yen dropped on Wednesday after an influential Bank of Japan official played down the chances of a near-term rate hike, soothing investors’ concerns that a further jump in the Japanese currency could again rock global markets.
The yen fell about 2.5% to a session low of 147.94 per dollar following the comments from BOJ Deputy Governor Shinichi Uchida. The dollar was last up 1.9% at 147.06 yen.
“As we are seeing sharp volatility in domestic and overseas financial markets, it’s necessary to maintain current levels of monetary easing for the time being,” Uchida said.
His remarks, which contrasted with Governor Kazuo Ueda’s hawkish comments made last week when the BOJ unexpectedly raised interest rates, sent Japanese stocks higher, leaving them effectively flat for the week.
The BOJ’s hike last week, along with intervention from Tokyo in early July, led investors to bail out of once-popular carry trades in which traders borrow the yen at low rates to invest in assets that offer higher returns.
The carry unwind has combined with weak U.S. jobs data and fears about an artificial intelligence bubble to send global stocks tumbling this week, started by a 12% crash in Japanese equities on Monday.
“I think it’s become increasingly clear that the BOJ hawkish turn last week could be a policy error,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “Japan’s economy is actually in poor shape, especially domestic demand.”
The , which measures the currency against six rivals, rose 0.18% to 103.16, inching further above the seven-month low of 102.15 it touched on Monday.
Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments, said that “Uchida has saved the carry trade – for now”.
“Japan policy is one of the important moving parts of the overall risk structure in the market. The other important ones would be U.S. economic data, which in turn informs Fed policy trajectory.”
The yen’s decline was broad based, with the Mexican peso, New Zealand dollar and Australian dollar – all carry trade investment candidates – surging against the currency.
The Swiss franc, another currency that was used to fund carry trades, like the yen, was down around 1.1% to 0.8612 per dollar.
The euro eased 0.1% to $1.0919, down from an eight-month high of $1.101 hit on Monday as the dollar dropped. Sterling was 0.27% higher at $1.2727.
Traders ramped up their bets on Federal Reserve rate cuts on Monday following an unexpected jump in the unemployment rate on Friday, at one point pricing in more than 125 basis points of reductions this year.
Those bets have gradually come down, and traders on Wednesday were expecting 100 bps of easing this year and a 62% chance of a 50 bp cut in September, having priced it as a near certainty on Monday.
In other currencies, the Australian dollar was 0.67% higher at $0.6563, a day after the central bank ruled out the possibility of an interest rate cut this year, saying core inflation is expected to come down only slowly.
The has struggled in recent days, sinking to eight-month lows on Monday in the wake of the global market meltdown but perked up on the day following BOJ comments.
The New Zealand dollar was up 1.05% at $0.6017 following strong jobs data.
Investing.com– The Japanese yen exhibited minimal movement on Tuesday, despite Bank of Japan (BOJ) Deputy Governor Ryozo Himino indicating a potential hike in the upcoming policy meeting.
Himino suggested that the central bank might consider raising rates, citing sustained wage growth and expectations of a clearer U.S. policy landscape following President-elect Donald Trump’s inaugural address later this month.
The yen’s pair edged 0.1% higher to 157.62 yen on Tuesday.
In recent months, the BOJ has been adjusting its monetary policy to address rising inflation. In March last year, it ended its negative interest rate policy, and by July, it had increased the short-term policy rate to 0.25%.
These measures aim to achieve a stable 2% inflation target, supported by robust wage growth and a weakening yen, which have contributed to higher import costs.
Despite these developments, the yen’s exchange rate against the U.S. dollar remained relatively stable, reflecting market skepticism about the likelihood of an imminent rate hike.
Analysts suggest that while the BOJ is signaling a shift towards policy normalization, uncertainties surrounding global economic conditions and domestic wage dynamics may lead to a cautious approach.
Barclays (LON:) expects the central bank to implement rate hikes in March and October, with a terminal rate of 0.75%.
The BOJ’s next policy meeting is scheduled for January 23-24, where new growth and price projections will be discussed.
Investing.com — UBS strategists expect the US dollar “to stay stronger for longer,” citing robust US economic activity and ongoing tariff concerns impacting other regions.
Monday saw the (DXY) soar to its highest level since November 2022, trading above the 110 mark during the session. This represents a roughly 9% appreciation since late September.
The US dollar’s recent strength has been bolstered by better-than-expected domestic data, including nonfarm payrolls and the services sector purchasing managers’ index. These positive indicators have led to a decrease in the anticipated number of Federal Reserve rate cuts this year, with the consequent rise in US yields lending broad support to the USD.
While US economic data is expected to remain solid in the near term, the outlook for Europe is less optimistic, with subdued growth prospects.
Although growth in China is forecasted to accelerate to 5% year-over-year for the fourth quarter, the threat of US tariffs poses a significant risk. Political and economic uncertainties in South Korea, the European Union, and the UK have been linked to weakness in their respective currencies.
According to UBS, potential monetary policy divergence is among the key factors that could further propel the dollar upward in the near term.
While the Fed is expected to cut rates by a total of 50 basis points in the second and third quarters, the European Central Bank is projected to reduce rates by 100 basis points in the first half of the year.
“Policy divergence is a powerful driver of currencies, which leads to trending FX markets and the potential for overshooting exchange rates,” strategists led by Mark Haefele wrote.
The firm also points out that tariff risks may not be fully accounted for in the current USD valuation. Despite the dollar’s recent rally being largely attributed to solid US macroeconomic data, the introduction of new tariffs could drive the dollar even higher.
UBS suggests that if tariffs are implemented, the DXY could trade between 110 and 115, with significant impacts on other major currency pairs.
“If tariffs were to materialize, DXY could trade in a 110-115 range, could drop below parity, could slide below 1.20, and could move toward 0.94, in our view,” strategists noted.
However, the investment bank believes that the story of 2025 could be a tale of two halves, with the dollar strength in the first half of the year potentially reversing in the second half.
The current trading position of the USD, which is considered strongly overvalued and shows the highest level of dollar net length since 2015, supports this view.
UBS’s revised forecasts for the EUR/USD pair reflect this expected trajectory. Strategists expect the pair to trade at 1.00 in March, 1.02 in June, and 1.06 in December 2025.
In the case of China, despite the possibility of dramatically higher effective tariff rates, the CNY has only partially priced in this risk, with UBS reiterating its forecast for the to reach 7.50 by June.
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