Business

Yen close to a four-month low, Fed in forefront

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Staff Reporter

2 years ago

SINGAPORE: The day after the Bank of Japan’s much-anticipated announcement to stop its zero interest rate policy, the yen lingered close to a 16-year low against the euro and a four-month low against the US dollar on Wednesday. The Bank of Japan announced that it would continue to maintain accommodating conditions for the time being, maintaining pressure on the yen as long as the US-Japanese rate differentials remained significant, even as it implemented the nation’s first rate hike in 17 years.

The multi-decade low of 151.94 was within sight as the yen dropped to a four-month low of 151.34 per dollar on Wednesday. It was last down 0.30% at 151.28. Tuesday’s BOJ decision caused the Asian currency to drop 1% because most investors had already factored in the adjustment. The yen dropped to 164.35 versus the euro, the lowest level since 2008, and to 192.37 against the pound, the lowest level since 2015. On Wednesday, the markets in Japan are closed due to a holiday.

The focus is once more on the 152 levels, according to OCBC currency strategist Christopher Wong. According to Wong, the US Federal Reserve’s decision, which is expected later on Wednesday, will have a greater influence on the dollar/yen exchange rate in the near future. On Tuesday, the Japanese central bank abandoned eight years of negative interest rates and other traces of unconventional economic policy, marking a historic departure from decades of huge monetary stimulus.

BOJ Governor Kazuo Ueda’s dovish remarks following the meeting, according to Daniela Hathorn, senior market analyst at Capital.com, were sufficient to quell any post-decision optimistic mood in the Japanese yen.

According to Hathorn, “the carry trade versus the major currencies is still in play and is expected to stay that way for a while.” This indicates that more yen weakness is expected, particularly if other central banks hold off on raising interest rates.

The Federal Reserve will continue to be the center of attention for the day; even if no action is anticipated from the bank, its economic forecasts and Chair Jerome Powell’s remarks will be of particular interest.

Due to the higher-than-expected inflation data released last week, traders have lowered their bets on rate cuts this year; as a result, markets are currently pricing in 73 basis points (bps) of easing.

150 basis point cuts were priced in by markets at the beginning of the year. The CME FedWatch tool indicated that traders are putting in a 59% possibility of the Fed beginning its easing cycle in June, which is significantly less than early forecasts. The dollar index, which compares the value of the US dollar to six competitors, increased to 103.87, up 0.019%.

At $1.0862, the euro was down 0.03%. New Zealand’s dollar dropped 0.17% to $0.604, while the Australian dollar slid 0.08% to $0.652.

As anticipated, Australia’s central bank kept interest rates unchanged on Tuesday but softened its stance on tightening by stating that it was making no policy decisions.

Staff Reporter