The Japanese yen rose in the Asian market on Wednesday against a basket of major and minor currencies, extending gains for the second consecutive day against the US dollar, hitting the highest level this year, specifically in the last nine months, thanks to aggressive comments from a monetary policymaker at the Bank of Japan.
The comments raised the odds of the Bank of Japan raising interest rates for a third time this year, pending more economic data on growth, inflation and wages in the country.
The yield on the 10-year US Treasury bond slipped to a 15-month low after Democratic Party candidate Kamala Harris made progress after the presidential debate with Republican Party candidate Donald Trump ahead of the November election.
Later in the day, markets await the release of key US inflation data for August, which will provide strong clues about how quickly the Federal Reserve will cut interest rates in September.
Price outlook • Japanese yen exchange rate today: The dollar fell against the yen by 1.1% to (140.89¥), the lowest since December 2023, from the opening price of today’s trading at (142.42 ¥), and recorded the highest level at (142.47 ¥).
The Japanese yen on Tuesday rose 0.5% against the US dollar, in a fifth daily gain in the last six days, thanks to safe-haven purchases of the Japanese currency, amid a clear risk aversion in global financial markets.
Bank of Japan board member Junko Nakagawa said on Wednesday that the Bank of Japan will continue to raise interest rates if the economy and inflation move in line with its expectations.
Nakagawa explained that real interest rates are at a very low level, and that the central bank will adjust the level of monetary easing if the economic outlook materializes.
Nakagawa explained that real interest rates are at a very low level, and that the central bank will adjust the level of monetary easing if the economic outlook materializes.
Nakagawa warned of the potential risks of rising prices in the country, stressed that he sees easy financial conditions even with interest rate hikes, and suggested that the central bank review its plans to reduce purchases of Japanese government bonds at upcoming meetings.
Last week, Bank of Japan board member Hajime Takata said the central bank should continue to raise interest rates if it can confirm that companies will continue to raise spending and wages.
Traders still see less opportunity to raise Japanese interest rates at the Bank of Japan meeting in October, with the odds of a third Japanese interest rate hike in December rising to 90%.
US Bond YieldThe yield on 10-year US Treasury bonds fell on Wednesday by about 0.8 percentage points, extending gains for the seventh consecutive session, hitting a 15-month high of 3.618%, which severely reduces investment opportunities in the US dollar.
This development in the US bond market comes after the end of the presidential debate between Democratic Party candidate Kamala Harris and Republican Party candidate Donald Trump before the November elections.
Harris has made some progress over Trump, which quickly reflected in the continued decline in dollar levels and US yields, and investors widely see Harris as meaning a weak dollar and a strong Trump dollar.
Mizuho Securities strategist Shoki Aomori said Vice President Kamala Harris appeared to have gained more confidence as the debate progressed and clearly defined her economic policies.
Aomori explained that this gave some relief to the market, which led to the weakening of the US dollar. However, Aomori added, it is difficult at this point to determine the direction of the dollar if Harris or Trump take office.
US Interest Interest
According to CME Group’s FeedWatch: The pricing of the prospects of a 50 basis point cut in US interest rates at the September meeting is currently stable at 35%, and the pricing of the prospects of a cut by about 25 basis points at 65%.
In order to reprice those possibilities, investors await later today the release of key US inflation data for August, which shows the extent to which inflationary pressures have reached the Federal Reserve.
David Doyle, head of economics at Macquarie, said: “While more substantial cuts in US interest rates are possible until the end of the year in the event of a deterioration in data, our baseline remains to cut rates by 25 basis points in September, with a possible easing at this pace also in November and December.
Kyle Rodda, financial markets analyst at Capital.com, said: “Markets want to see evidence that inflation is behaving in a way that allows the Fed to move by cutting 50 basis points if necessary.
Rhoda added that the market would not welcome a significant downward surprise in consumer prices because it could be interpreted as a sign of a worsening demand shock.
Expectations about the performance of the Japanese yen • We expect here at FX News Today that the yen will continue to move in positive territory against the US dollar, with the possibility of trading above the 140-yen barrier for the first time since July 2023, especially if inflation data enhances the prospects of a US interest rate cut at a pace of 50 basis points in September.
Read also:BCA Research expects US dollar to rebound amid global trade concerns
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