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BoJ Hikes Rates, Yen Surges Against Dollar
Confirmed
In Short: The Japanese yen surged to a one-month high against the US dollar, with the dollar falling as much as 1.5% to around ¥156.17.
The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy.
The Japanese yen surged to a one-month high against the US dollar, with the dollar falling as much as 1.5% to around ¥156.17.
BoJ board member Hajime Takata said the central bank should raise interest rates “nimbly” to counter intensifying inflationary pressures rather than follow a fixed, semiannual tightening schedule.
Interest-rate markets were pricing roughly a 77% probability of a BoJ rate increase later in September, according to LSEG data.
The yen’s rise was driven largely by expectations that the BoJ may increase interest rates sooner or more aggressively than markets had anticipated.
A higher Japanese policy rate would tend to support the yen by narrowing the gap between U.S. and Japanese interest rates.
The dollar’s decline against the yen was reinforced by comments from Federal Reserve Governor Christopher Waller, who said he could support holding U.S. interest rates steady at the September meeting if upcoming inflation data continues to show improvement.
Waller’s position reduced expectations for an immediate Fed rate increase and narrowed the relative policy advantage supporting the U.S. dollar.
The Bank of Japan’s decision to raise rates comes amid persistent inflationary pressures and the yen’s prior weakness, which raises import costs for Japanese households and businesses.
Reports of a BoJ rate check signalled readiness to intervene, capping near-term yen weakness as USD/JPY approaches 160.00.
What this adds
The Malaysian Ringgit weakened on Thursday as the US Dollar strengthened and US Treasury yields rose, with some relief seen as the Dollar and yields retreated.
Christopher Wong at OCBC says the Malaysian Ringgit weakened due to a stronger US Dollar and higher US Treasury yields, though some pressure eased later.
Background
The Malaysian Ringgit weakened on Thursday as the US Dollar strengthened and US Treasury yields rose, with some relief seen as the Dollar and yields retreated.
Christopher Wong at OCBC says the Malaysian Ringgit weakened due to a stronger US Dollar and higher US Treasury yields, though some pressure eased later.
What's confirmed
- The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy.
- The Japanese yen surged to a one-month high against the US dollar, with the dollar falling as much as 1.5% to around ¥156.17.
- BoJ board member Hajime Takata said the central bank should raise interest rates “nimbly” to counter intensifying inflationary pressures rather than follow a fixed, semiannual tightening schedule.
- Interest-rate markets were pricing roughly a 77% probability of a BoJ rate increase later in September, according to LSEG data.
- The yen’s rise was driven largely by expectations that the BoJ may increase interest rates sooner or more aggressively than markets had anticipated.
- A higher Japanese policy rate would tend to support the yen by narrowing the gap between U.S. and Japanese interest rates.
- The dollar’s decline against the yen was reinforced by comments from Federal Reserve Governor Christopher Waller, who said he could support holding U.S. interest rates steady at the September meeting if upcoming inflation data continues to show improvement.
- Waller’s position reduced expectations for an immediate Fed rate increase and narrowed the relative policy advantage supporting the U.S. dollar.
- The Bank of Japan’s decision to raise rates comes amid persistent inflationary pressures and the yen’s prior weakness, which raises import costs for Japanese households and businesses.
- Reports of a BoJ rate check signalled readiness to intervene, capping near-term yen weakness as USD/JPY approaches 160.00.
What's still developing
- It shows the scale of the government’s concern about yen weakness and its willingness to deploy substantial reserves to influence exchange-rate conditions.
- The dollar fell as much as 1.5% to around ¥156.17, following a sharp move that briefly pushed the Japanese currency toward ¥155.30 per dollar.
- The speed of the move raised questions about official intervention, though Japanese government data and market analysts did not confirm direct currency-market action on September 3.
- USD/JPY is easing back below 157.00 in Asia on Monday, undermined by modest Japanese Yen strength amid looming intervention risks after Friday's BoJ rate check.
- Higher mortgage rates continue to weigh on affordability and demand, though builder incentives remained in place and conditions did not worsen materially during the month.
- Achieving that would require a credible signal that additional and potentially faster rate hikes are on the table." "In an ideal world, the BoJ would probably prefer a middle path: further rate hikes, but at a pace that does not derail the economy.
- If the BoJ creates the impression that it is unwilling to defend the yen decisively, it risks losing credibility." "Once investors begin to lose confidence in a currency, a point can be reached where even aggressive rate hikes are no longer sufficient to reverse the trend.
- The most prominent example is Sweden's Riksbank, which temporarily raised its policy rate to 500% in the early 1990s in an attempt to defend the krona, only to abandon its exchange-rate peg shortly thereafter." "In short, time is running out for the BoJ.
- AUD/USD holds steady above 0.7100 in the Asian session on Monday as the US Dollar stalls its modest pullback from the highest level since late July amid persistent geopolitical uncertainties.
- The PBOC status quo on Loan Prime Rates also weighs on the Aussie.
- The Mexican Peso appreciates against the US Dollar on Thursday, with the latter weakening amid a dovish tilt by Fed Governor Waller and speculation about an FX market intervention to boost the Japanese Yen.
- Wall Street finished Thursday’s session on a positive note, as Fed Governor Waller opened the door to holding rates unchanged.