Yen climbs to seven-month high on hawkish BOJ bets
[LONDON] The Japanese yen climbed to a near seven-month high on Tuesday (Sep 8), as growing expectations of a Bank of Japan...
The Japanese yen reached a seven-month high on Tuesday (Sep 8), driven by anticipations of a Bank of Japan (BOJ) rate increase the following week, which prompted bearish traders to exit their positions, exerting downward pressure on the US dollar in anticipation of US inflation data this week. The yen surged to a peak of 152.89 per dollar, surpassing levels achieved during Japan's July intervention and marking its strongest point since February.
However, the currency subsequently fell back to trade at 154 in London morning trade. The Japanese currency has gained approximately 4% from its levels around 160 yen per dollar earlier in the week. Analysts attribute the shift in the currency to a combination of factors, including expectations of more aggressive tightening by the BOJ, potential repatriation of Japanese investments, unwinding of carry trades, and US political pressure.
Dominic Bunning, head of G10 FX strategy at Nomura in London, noted that the market-driven movement may be a result of investors considering the possibility of a more hawkish BOJ at the upcoming meeting. Nonetheless, the BOJ's ability to hike faster than the market has priced in or to a higher terminal rate appears challenging. If a weaker yen is factored into inflation considerations, its importance may be diminishing.
Japanese Finance Minister Satsuki Katayama affirmed on Tuesday that both Tokyo and Washington share a common approach to currency markets and will maintain close communication to ensure orderly foreign exchange movements. The dollar index, which measures the US dollar against six others, remained relatively stable at 98.93, primarily due to the euro holding steady at US$1.1615.
The European Central Bank is widely anticipated to raise interest rates on Thursday, as the ongoing US-Iran conflict, which is driving up oil prices and inflation, continues. Market attention is now shifting towards US inflation readings this week, the final set of significant data releases prior to the Federal Reserve meeting scheduled for Sep 15 to 16.
Traders currently estimate a roughly 60% probability of a Federal Reserve rate hike this month following Friday's stronger-than-expected non-farm payrolls report. Fed Governor Christopher Waller indicated last week that inflation trends would be crucial for his policy stance, stating he leans towards maintaining rates if inflation continues to ease but would support a hike if inflation fails to subside.
Additionally, investors are monitoring geopolitical tensions in the Gulf and their potential impact on inflation following the recent attack on energy facilities and cities in US ally Saudi Arabia by Iran-backed Houthis, resulting in injuries to over 70 people and raising concerns about the escalation of the Iran conflict. Oil prices reached a six-week high, with Brent crude futures trading firmly above US$99 a barrel.
Meanwhile, the British pound reached a one-week high before falling to US$1.3525, as investors awaited statements from Bank of England policymakers, including Governor Andrew Bailey.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
