The Japanese yen rose on Friday after newly appointed Finance Minister Satsuki Katayama said the government is monitoring currency movements “with a high degree of sensitivity,” even as the yen heads for its weakest monthly performance against the dollar since July.

The move followed a volatile week for Japan’s currency, which briefly strengthened after US Treasury Secretary Scott Bessent criticized the Bank of Japan for not hiking rates quickly enough, only to fall again after the central bank left its policy unchanged as widely expected.

Katayama also walked back comments she made in March, when she estimated the yen’s fair value between 120 and 130 per dollar. She said Thursday that such remarks were “no longer appropriate” given her current role overseeing monetary policy — a statement that dampened optimism among traders betting on a stronger yen.

Tokyo inflation adds pressure on the Bank of Japan

Government data released Friday showed Tokyo’s core consumer prices rose 2.8% in October from a year earlier, exceeding forecasts and keeping inflation above target, complicating the BOJ’s task of determining when to begin tightening policy.

In European trading, the yen edged higher, with the dollar trading at 154.28 yen, slightly above a nine-month low for the Japanese currency. The yen has fallen about 4% against the dollar in October — its worst monthly showing since July — and also hit a record low against the euro.

“We’re reaching the point where yen weakness has become a genuine political concern in Japan,” said Sim Moh Siong, FX strategist at Bank of Singapore.

Meanwhile, the US Dollar Index held near a three-month high, supported by risk-off sentiment following a busy week of central-bank decisions, tech earnings, and an initial trade-truce deal between the US and China.

“Risk aversion is playing in favor of the dollar,” said Rodrigo Catril, currency strategist at National Australia Bank. “There’s still uncertainty over whether the Fed will actually deliver another rate cut in December.”

According to CME’s FedWatch tool, the probability of a December rate cut has fallen to about 75%, down from more than 90% a week earlier.

Euro steady, pound weakens

The euro rose 0.1% to $1.1572 after the European Central Bank kept rates unchanged at 2% for a third straight meeting, saying monetary policy is “well positioned” as economic risks ease. Still, the euro remains down roughly 1.4% against the dollar for October.

The British pound slipped to $1.3145 amid rising political pressure on UK Finance Minister Rachel Reeves. Sterling is heading for a monthly loss of about 2.3%, while gilt yields fell as investors sought safety ahead of November’s budget announcement and its potential economic fallout.

“The UK’s economic outlook looks fragile, and markets don’t like uncertainty,” said Fiona Cincotta, senior market analyst at City Index. “The government is in a difficult spot with very few options — and that’s showing up in sterling’s weakness.”

In Asia, the dollar held steady around 7.111 yuan in offshore trading, even after data showed China’s factory activity contracted for a seventh consecutive month in October, missing expectations.

Gold prices fell in European trading on Friday, resuming losses after a brief rebound the previous day from a three-week low, as the metal once again traded below the $4,000 per ounce mark under pressure from a stronger US dollar across global markets.

The decline came after the Federal Reserve’s policy meeting this week delivered a more hawkish tone than markets had expected, reducing the likelihood of another rate cut in December following two consecutive 25-basis-point reductions.

Despite today’s weakness, gold remains on track to post a third consecutive monthly gain, supported by persistent safe-haven demand amid heightened global political and trade tensions.

Price overview

• Gold prices fell 0.9% to $3,989.27 per ounce, after opening at $4,024.67 and hitting a session high of $4,046.35.

• On Thursday, the metal rose 2.4%, snapping a four-day losing streak, as it rebounded from a three-week low of $3,886.64.

US dollar

The US Dollar Index hovered near a three-month high around 99.72 points on Friday, reflecting continued strength in the greenback against major and minor peers.

The dollar’s gains have been supported by renewed safe-haven buying following the Fed’s hawkish stance this week, which increased doubts about further monetary easing or rate cuts.

Sentiment was also buoyed by signs of easing trade tensions between the United States and China after Presidents Donald Trump and Xi Jinping met in South Korea and agreed to a temporary trade truce aimed at reviving negotiations.

Federal Reserve

As widely expected, the Fed cut interest rates by 25 basis points on Wednesday to 4.00%, the lowest since November 2022, marking its second consecutive cut this year.

The decision was backed by a majority of FOMC members, with two dissenters — Steven Miran, who favored a 50-basis-point cut, and Jeffrey Schmid, who preferred no change.

The policy statement noted slower job growth and a slight rise in unemployment while emphasizing that the labor market remains relatively tight. It also said economic activity continues to expand at a moderate pace and that inflation remains elevated compared with earlier this year.

Jerome Powell

Fed Chair Jerome Powell said Wednesday that another rate cut in December “is far from a given,” adding that policymakers hold “sharply divided views” on the path forward.

Powell acknowledged rising tensions in money markets in recent weeks and said the Fed has been managing liquidity conditions carefully. He emphasized that the central bank is relying on all available data — including private surveys and sector data — as official government reports remain unavailable due to the ongoing shutdown.

He described the current situation as “complex,” noting that the economy is caught between the risks of persistently high inflation and a weakening labor market, and said current policy remains “moderately restrictive.”

Interest-rate outlook

According to CME’s FedWatch Tool, market pricing for a 25-basis-point rate cut in December has fallen from 99% to 70%, while the probability of holding rates steady rose from 1% to 30%.

Monthly performance

• For October, gold is still up around 3.5%, on track for a third straight monthly gain.

• Earlier this month, the metal hit an all-time high of $4,381.73 before entering a broad correction and profit-taking phase.

Market outlook

Tim Waterer, chief market analyst at KCM Trade, said: “Powell’s tone was notably hawkish this week, which hasn’t been favorable for gold.”

He added that “the December rate-cut outlook now looks far less certain, boosting the dollar’s strength and complicating gold’s near-term appeal.”

SPDR Gold Trust

Holdings at the SPDR Gold Trust, the world’s largest gold-backed ETF, rose by 4.3 metric tons on Thursday to 1,040.35 metric tons — their highest level since October 24.

The euro rose slightly in European trading on Friday against a basket of major currencies, attempting to recover from a two-week low against the US dollar as traders engaged in limited buying from lower levels. The move came ahead of key eurozone inflation data expected to offer strong clues about the likelihood of a rate cut by the European Central Bank (ECB) in December.

The single currency remains on track to post its first monthly loss in three months, weighed down by political tensions in France, escalating geopolitical risks in Eastern Europe, and a stronger appetite among investors for the US dollar as a safe-haven alternative.

In line with expectations, the ECB on Thursday kept its key interest rates unchanged at 2.15%, their lowest level since October 2022, marking the third consecutive meeting without a policy change.

Price overview

• EUR/USD rose 0.1% to 1.1577 from an opening level of 1.1564, after touching a session low of 1.1563.

• On Thursday, the euro fell 0.3% against the dollar, its second consecutive daily loss, hitting a two-week low at 1.1547 after both the ECB and Federal Reserve meetings.

Monthly performance

• For October, the euro is currently down more than 1.3% against the dollar, on course for its first monthly decline in three months.

• Downward pressure this month was driven by political instability in France — the eurozone’s second-largest economy — and rising geopolitical tensions in Eastern Europe amid intensifying conflict in Ukraine.

• Investors also increased dollar holdings as a preferred safe-haven asset amid heightened global risks, including renewed US-China trade friction and the ongoing US government shutdown.

European Central Bank

The ECB confirmed on Thursday that it would leave rates unchanged at 2.15%, as expected, noting that inflation is now approaching the 2% medium-term target and that the Governing Council’s assessment of inflation expectations remains broadly unchanged.

Christine Lagarde

ECB President Christine Lagarde said on Thursday that the bank “remains in a good position” and that risks to the economy are now “more balanced than before.” She added that the ECB will continue taking the necessary steps to preserve stability amid a volatile global environment.

Interest-rate outlook

• Market pricing currently reflects less than a 10% probability of a 25-basis-point ECB rate cut in December.

• Traders have largely scaled back bets on further policy easing, signaling that this year’s rate-cut cycle may already be over.

Eurozone inflation

To reassess these expectations, investors await the release of October inflation data later today, which will help determine how inflationary pressures are evolving across the bloc.

At 10:00 GMT, the eurozone consumer price index (CPI) is expected to show a 2.1% annual rise in October, down slightly from 2.2% in September, while core inflation is projected to ease to 2.3% from 2.4% previously.

Outlook for the euro

According to Economies.com: if inflation readings come in hotter than expected, market expectations for a December rate cut will likely diminish further — a development that would support additional gains for the euro in the foreign-exchange market.

The Japanese yen rose in Asian trading on Friday against a basket of major currencies, attempting to recover from its eight-month low against the US dollar and heading for its first gain in three sessions. The rebound came as traders bought the yen at low levels, encouraged by a warning from Japan’s finance minister and stronger-than-expected inflation data from Tokyo.

Despite the uptick, the yen remains on track to post a second consecutive monthly loss, pressured by expectations of expansive fiscal policies under newly appointed Prime Minister Sanae Takaichi, the first woman in Japan’s history to hold the position, who is preparing a massive stimulus package to support the world’s fourth-largest economy.

In line with expectations, the Bank of Japan on Thursday left its monetary policy unchanged, keeping interest rates at 0.50% — the highest level since 2008 — for the sixth consecutive meeting.

Price overview

• USD/JPY fell 0.3% to ¥153.65, after opening at ¥154.11 and reaching an intraday high of ¥154.17.

• On Thursday, the yen lost 0.9% against the dollar, marking a second straight decline and hitting its lowest level in eight months at ¥154.45, pressured by the outcomes of both the US Federal Reserve and Bank of Japan meetings.

Finance Minister Satsuki Katayama

Finance Minister Satsuki Katayama said Friday the government is “closely watching currency market movements with great concern,” marking her strongest statement on the yen since taking office last week.

“We have recently seen rapid, one-sided moves,” Katayama said in a regular press briefing. “The government is paying close attention to excessive volatility and disorderly movements in the forex market, including those driven by speculation.”

Asked about the Bank of Japan’s decision to keep rates steady, Katayama said the move was “very reasonable under current conditions.”

Tokyo inflation

Fresh data showed Tokyo’s core consumer price index rose 2.8% year-on-year in October — the fastest pace in four months and above market expectations of 2.6%, following a 2.5% increase in September.

The renewed acceleration in prices adds pressure on the Bank of Japan to consider further rate hikes this year.

• Following the data, market pricing for a 25-basis-point rate increase at the BOJ’s December meeting rose from 50% to 55%.

• Investors are now awaiting additional data on inflation, wages, and employment before adjusting expectations further.

Monthly performance

For October, the yen is still down more than 4% against the dollar, heading for a second straight monthly loss.

Sanae Takaichi’s historic win

Japan entered new political territory this month as Sanae Takaichi became the country’s first female prime minister after winning a decisive parliamentary vote. According to NHK, Takaichi secured 237 votes in the first round, eliminating the need for a runoff in the 465-seat lower house.

Her victory followed a coalition deal between the ruling Liberal Democratic Party and the Japan Innovation Party, under which she agreed to some of the latter’s policies — including reducing the number of parliamentary seats, offering free secondary education, and freezing the food consumption tax for two years.

A long-time ally of the late Shinzo Abe, Takaichi supports stimulus-driven “Abenomics-style” policies, fueling expectations of continued expansionary fiscal measures that may buoy Japanese equities but keep the yen under pressure due to prolonged monetary accommodation.

New stimulus package

According to government sources cited by Reuters, Takaichi’s administration is preparing an economic stimulus package expected to exceed ¥13.9 trillion (about $92 billion) to help households cope with rising prices and inflation. The final size is still being discussed, with an announcement expected early next month.

Bank of Japan policy

At Thursday’s meeting, the BOJ maintained its current policy stance by a 7-2 vote, with two board members again advocating for a hike to 0.75%. The split underscores growing pressure within the bank to normalize policy.

In its quarterly outlook, the BOJ raised growth forecasts for the current fiscal year and upgraded its inflation projection for fiscal 2026, now expecting core inflation to stay above 2% in the latter half of its forecast period through March 2027.

Governor Kazuo Ueda offered little guidance in his post-meeting press conference on the timing of the next rate increase, which added to pressure on the yen.