Yen backs off five-month high on cautious BOJ tone

The Japanese yen dropped in Asian trade on Wednesday on track for the second straight loss against the dollar, moving away from five-month highs on profit-taking.

Recent bullish remarks from some Bank of Japan officials hurt the odds of a Japanese rate hike in March as markets now await more data.

The yen is also pressured by higher US 10-year treasury yields before a series of important US labor data.

The Price

The USD/JPY pair rose 0.25% today to 150.18 yen per dollar, with a session-low at 149.57.

The yen lost 0.2% on Tuesday against the dollar on profit-taking away from a five-month high at 148.09.

Cautious Remarks

Bank of Japan Governor Kazuo Ueda said on Wednesday that monetary policy divergence with other countries could increase instability especially at the forex market. He cautioned that mounting geopolitical tensions between countries could lead to a sudden change in capital inflows across borders.

BOJ Deputy Governor Shinichi Uchida said that the BOJ monetary policy doesn’t aim at manipulating the forex market or reducing the yen’s value, and he added that the BOJ will take US tariffs into account when reviewing economic outlook.

Uchida said there are no plans for a rate hike at each monetary policy meeting, and no preconceived view on the pace of future rate hikes, as such moves will depend on the economy and inflation.

Japanese Rates

Following the remarks, the odds of a Bank of Japan interest rate hike in March fell from 85% to 65%.

US Yields

US 10-year treasury yields rose 0.9% on Wednesday away from five-month lows at 4.108%, in turn underpinning the dollar.

It comes as investors assess the impact of US tariffs on Canada, Mexico, and China in regards to inflation in the US.

According to the Fedwatch tool, the odds of a 0.25% Fed interest rate cut in March stood at just 7%.