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Japanese Yen Weakens Against US Dollar After BoJ Rate Hike
Confirmed
In Short: The Japanese yen weakened against the US dollar on Monday after the Bank of Japan raised its short-term interest rate target.
The Japanese yen weakened against the US dollar on Monday after the Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00%, a move widely anticipated by financial markets.
The USD/JPY exchange rate eased back below 157.00 in Asia, reflecting modest strength in the Japanese yen amid concerns over potential intervention risks following Friday's BoJ rate decision.
The BoJ's decision to raise interest rates was seen as a response to intensifying inflationary pressures, with BoJ board member Hajime Takata advocating for a more nimble approach to interest-rate increases.
Despite the BoJ's rate hike, the US Dollar strengthened after the Federal Reserve raised interest rates and issued a hawkish outlook, pushing the currency to seven-week highs.
The USD/JPY pair faced downward pressure as the New Zealand Dollar (NZD) weakened following signals that future Reserve Bank of New Zealand (RBNZ) rate hikes would be gradual.
The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
The Mexican Peso appreciated 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.
Waller supports holding rates unchanged if the disinflation process evolves, but warned that a rate hike is possible if a red-hot US CPI report is released next week.
The Bank of Japan's rate hike and the Federal Reserve's hawkish stance have raised questions about the effectiveness of aggressive rate hikes in reversing currency trends.
Once investors lose confidence in a currency, even aggressive rate hikes may not be enough to reverse the trend.
A historical example cited by analysts is Sweden's Riksbank, which raised its policy rate to 500% in the early 1990s to defend the krona, only to abandon its exchange-rate peg shortly after.
What this adds
The Japanese yen's rise was driven largely by expectations that the Bank of Japan may increase interest rates sooner or more aggressively than markets had anticipated.
The US Dollar's strength is attributed to the Federal Reserve's recent hawkish stance, which has pushed the currency to seven-week highs.
Background
The Japanese yen (JPY) remains under pressure following a strong rebound in the US dollar (USD) last week. USD/JPY eased below 157.00 in Asia on Monday, despite modest yen strength amid looming intervention risks.
The Japanese yen weakened against the US dollar on Monday after the Bank of Japan raised its short-term interest rate target.
What's confirmed
- The Japanese yen weakened against the US dollar on Monday after the Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00%, a move widely anticipated by financial markets.
- The USD/JPY exchange rate eased back below 157.00 in Asia, reflecting modest strength in the Japanese yen amid concerns over potential intervention risks following Friday's BoJ rate decision.
- The BoJ's decision to raise interest rates was seen as a response to intensifying inflationary pressures, with BoJ board member Hajime Takata advocating for a more nimble approach to interest-rate increases.
- Despite the BoJ's rate hike, the US Dollar strengthened after the Federal Reserve raised interest rates and issued a hawkish outlook, pushing the currency to seven-week highs.
- The USD/JPY pair faced downward pressure as the New Zealand Dollar (NZD) weakened following signals that future Reserve Bank of New Zealand (RBNZ) rate hikes would be gradual.
- The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
- The Mexican Peso appreciated 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.
- Waller supports holding rates unchanged if the disinflation process evolves, but warned that a rate hike is possible if a red-hot US CPI report is released next week.
- The Bank of Japan's rate hike and the Federal Reserve's hawkish stance have raised questions about the effectiveness of aggressive rate hikes in reversing currency trends.
- Once investors lose confidence in a currency, even aggressive rate hikes may not be enough to reverse the trend.
- A historical example cited by analysts is Sweden's Riksbank, which raised its policy rate to 500% in the early 1990s to defend the krona, only to abandon its exchange-rate peg shortly after.
What's still developing
- This incremental move higher, in line with the elevated FXS Speechtracker score, suggests Musalem’s remarks add marginal upside risk to future rate expectations and support a constructive backdrop for the Dollar against lower-yielding peers.
- Despite this cautious stance from the RBNZ, financial markets are still pricing in another potential rate hike in October, driven largely by rising oil prices that pose renewed upside risks to inflation.
- In particular, the bank notes that “the longer energy prices remain elevated, the higher the chances of upward revisions in policy projections by year-end,” suggesting that the current rate ceiling could be revisited if inflation pressures prove more persistent than the RBNZ currently anticipates.
- The focus on broad commodity shocks, including base metals like copper, and core inflation still “too high” at up to 3% reinforces a sustained hawkish bias for the Dollar.
- Wall Street finished Thursday’s session on a positive note, as Fed Governor Waller opened the door to holding rates unchanged.
- On Wednesday, the Bank of Mexico (Banxico) Deputy Governor Jonathan Heath warned that Banxico should not cut rates in the near term, adding that a resumption of the easing cycle may be about a year away.
- He will support a rate cut if core inflation converges to the Mexican central bank’s 3% goal.
- Ahead, the US economic docket will feature August’s Nonfarm Payrolls and Unemployment Rate update.
- Interest-rate markets were pricing roughly a 77% probability of a Bank of Japan rate increase later in September, according to LSEG data.
- 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’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. Read also : Gold : Build Your Wealth and Freedom Waller’s position reduced expectations for an immediate Fed rate increase and narrowed the relative policy advantage supporting the U.S. dollar.
- Article no 3143 The Japanese yen surged to a one-month high against the U.S.