•Positive U.S. labor market data reduces recession fears
The Japanese yen fell in the Asian market on Friday against a basket of major and minor currencies, extending losses for the fourth consecutive day against the US dollar, moving away from a seven-month high, as corrections and profit-taking continue, amid positive sentiment dominating most global financial markets.
The decline is also due to less aggressive comments from the deputy governor of the Bank of Japan that have reduced the prospect of further rate hikes this year.
The rising yield on ten-year US Treasury bonds is weighing on yen levels, especially after strong jobless claims data eased fears of a US recession.
Price overview
• Japanese yen exchange rate today: The dollar rose against the yen by more than 0.4% to (147.82¥), from the opening price of today’s trading at (147.19 ¥), and recorded a low at (147.02 ¥).
• The Japanese yen ended Thursday’s trading down 0.35% against the US dollar, in the third consecutive daily loss, as corrections and profit-taking continued from a seven-month high of 141.68 yen per dollar.
Beyond the profit sell-off, the Japanese currency fell after less aggressive comments from the deputy governor of the Bank of Japan on the future of interest rates in Japan.
Read also:EUR under pressure due to renewed interest rate gap concerns
Positive morale
With fears of a US recession receding, and the slowdown in the dismantling of curry yen deals, risk sentiment improved widely in most global stock markets, especially US stocks on Wall Street, which in Thursday’s session achieved the largest daily gain in 2024.
Less aggressive comments Japan Bank Deputy Governor Shinichi Uchida said on Wednesday that the central bank will not raise interest rates when financial markets are unstable.
Given the sharp volatility in domestic and external financial markets, it is necessary to maintain current levels of monetary easing for the time being.
The above comments reduced the odds of Japan Bank raising interest rates for the third time this year, which is expected to reduce pressure on the breakup of Curry Trade deals.
US Bond Yield
The yield on the ten-year US Treasury bonds is trading on Friday at a one-week high of 4.022%, after trading again above the 4.000% barrier, which enhances investment opportunities in the US dollar.
The development in the U.S. bond market comes after government jobless claims fell 17,000 to seasonally adjusted 233,000 for the week ending Aug. 3, the biggest drop in nearly 11 months, and economists had forecast 240,000 new applications.
Following that data, according to CME Group’s FeedWatch: the pricing of US interest rate cuts fell by about 50 basis points at the September meeting from 72.5% to 56.5%, and the pricing of the possibilities of a cut rose by about 25 basis points from 27.5% to 43.5%.
Opinions & Analysis
Alvin Tan, head of foreign exchange strategy for Asia at RBC Capital Markets, said: “I think it is becoming increasingly clear that the hawkish shift of Bank Japan last week may be a mistake in direction. Tan added that the Japan’s economy is actually in poor shape, especially domestic demand.
East Spring Investments’ portfolio manager Rong Ren Ju said Uchida had saved the curry trade for now.
Ren Guo added: “Japan policy is one of the important moving parts of the overall risk structure of the market. Other important parts are US economic data, which in turn shapes the Fed’s policy trajectory.
Mark Matthews, head of research in Asia at Julius Baer, said there was no real need for Japan Bank to continue raising interest rates.
After things calm down, the large interest rate differential between Japan and other countries will again become the key factor in valuing the yen against other currencies.
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