Japanese Yen: Range trading holds against US Dollar – UOB

Despite a softer US Dollar, the Japanese Yen struggled to make significant gains this week. The USD/JPY pair traded around 158.05, marking the first weekly loss in five weeks for the currency pair. The US Dollar experienced a slide to two-week lows, primarily due to a sharp turn in US Treasury yields. Concerns over AI-related investments pushed investors towards government bonds, while the US Dollar Index (DXY) rose to 101.72 after peaking at 102.94 earlier in the week.

This decline in the Dollar occurred despite US inflation data surpassing expectations, which had previously bolstered hopes of another Federal Reserve rate hike. However, Fed officials appear to be cautious about consecutive rate hikes, with many markets predicting a pause at the October 27-28 meeting. Fed Chair Kevin Warsh reiterated the Fed's commitment to price stability, stating, "We made very clear that we would deliver price stability."

Meanwhile, the Bank of Japan (BoJ) maintained a gradual tightening path, providing limited support to the Japanese Yen. Despite the BoJ's efforts, Japan's low interest rates and high government debt burden continue to be challenges for the Yen. BoJ Governor Kazuo Ueda noted that accommodative financial conditions continue to support economic activity, but warned of risks of inflation overshooting the 2% target.

He also emphasized that the pace and timing of future policy adjustments would depend on the likelihood of his baseline projections and risks.