The dollar strengthens against the yen on Monday after Japan's central bank governor hinted at future rate hikes. However, Kazuo Ueda, the Bank of Japan (BOJ) governor, avoided specifying if the hike would come in December. His remarks left the market speculating about the BOJ’s next move.
Investors noted Ueda’s cautious approach to monetary policy. He mentioned that the BOJ would monitor risks, including U.S. economic conditions. Still, he highlighted the risks of delaying actions, which might require more aggressive rate hikes later.
The BOJ's lack of clarity caused mixed reactions in the currency markets. The dollar edged up 0.35% to 154.72 yen, recovering from Friday’s low of 153.86 yen. Last week, the yen briefly steadied after Japan’s Finance Minister Katsunobu Kato warned against excessive yen weakening.
The uncertainty did not significantly alter the market’s prediction for a December hike. Currently, markets see a 54% probability of a quarter-point rate increase at the BOJ’s next meeting.
The dollar also performed well against other major currencies. Against a basket of currencies, it held at 106.660, close to a one-year peak of 107.07. This strength was driven by rising U.S. Treasury yields, which surged 70 basis points in October alone.
Additionally, analysts foresee continued U.S. dollar appreciation. Capital Economics predicts a 5% increase by the end of 2025, citing expectations for robust U.S. economic performance and potential tariff policies under former President Donald Trump.
This week’s market focus extends to global inflation data from the UK, Japan, and Canada. Manufacturing surveys will also provide insights into post-election sentiment. Meanwhile, traders will watch for speeches by Federal Reserve (Fed) and European Central Bank (ECB) officials, looking for hints about future policy changes.
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