Yen’s Recovery Following BOJ’s Positive Outlook
The yen stabilizes as the impacts of the Bank of Japan (BOJ) optimism outlook on economic growth. Moreover, the BOJ indicated it would proceed cautiously with policy tightening. As a result, the yen has pared its earlier losses.
Euro Gains Ground Amidst Market Shifts
In contrast, the dollar faces challenges due to anticipated U.S. rate cuts. During a tumultuous week, the euro gained 2.2% against the yen, trading at 159.46. Speculators capitalized on recent long yen positions, which further affected the currency’s strength. Additionally, the euro appreciated to $1.11635, marking a 0.9% increase for the week. Notably, this puts it close to the August peak of $1.1201. A breakthrough above this level could target a July 2023 high of $1.1275.
Future Rate Hikes and Global Economic Trends
The dollar experienced a decline of 0.3%, reaching 142.21 yen. This is significantly lower than the overnight high of 143.95. The BOJ, as anticipated, maintained its overnight call rate target at 0.25% with a unanimous vote. Interestingly, the BOJ remains optimistic about Japan’s economic recovery. However, it also noted that inflation is moderating. This information has made investors somewhat hesitant to sell the yen. Furthermore, the BOJ highlighted currency volatility as a consideration in its decision-making.
Investors will closely watch any indications from Governor Kazuo Ueda regarding the timing of future tightening. Ueda is expected to adopt a cautious yet gradually hawkish stance. Shoki Omori, chief Japan desk strategist at Mizuho Securities, stated that a clear hawkish tone could lead the dollar-yen exchange rate to trend downward.
Recent consumer price data showed core inflation rising to 2.8% in August. Overall inflation reached 3.0%. Samara Hammoud, a currency strategist at CBA, noted that Japan’s real rate remains deeply negative at around -2.5%. Thus, there is potential for further policy rate increases while maintaining accommodative financial conditions. As a result, the BOJ may consider a rate hike of 25 basis points in October. However, upcoming political events may influence their cautious approach.
Meanwhile, globally, other central banks are taking a different direction. The People’s Bank of China unexpectedly left its benchmark lending rates unchanged. This decision comes amidst speculation about other potential stimulus measures.
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