Yen expands gains to two-week high on Japanese rates prospects

The Japanese yen rose in Asian markets on Tuesday against a basket of major and minor currencies, extending its gains for the third consecutive day against the US dollar and recording its highest level in two weeks, after the minutes of the Bank of Japan's meeting indicated a resumption of monetary policy normalization before the end of this year.

In order to reprice expectations regarding the Bank of Japan's potential interest rate hike of 25 basis points at the upcoming September meeting, investors are awaiting the release of further key data on developments in the world’s fourth-largest economy.

The Price

• USD/JPY exchange rate today: The dollar declined against the yen by 0.3% to ¥146.62, the lowest since July 24, down from the opening price of ¥147.08. The highest level recorded was ¥147.15.

• The yen posted a 0.2% gain against the dollar at Monday’s settlement, marking its second consecutive daily gain, amid a decline in the yield on 10-year US Treasury bonds.

Japanese Interest Rates

• The minutes of the June monetary policy meeting showed that some members of the Bank of Japan’s board stated that the central bank would consider resuming rate hikes if trade tensions ease.

• Following last week’s meeting, the Bank of Japan confirmed that it would raise interest rates if economic and price conditions align with expectations.

• Bank of Japan Governor Kazuo Ueda stated that the recent trade agreement between the United States and Japan represents a significant positive step toward enhancing economic stability by reducing uncertainty that has long weighed on future outlooks.

• Market pricing of the Bank of Japan raising interest rates by 25 basis points at the September meeting is currently holding above 50%.

• To reprice these expectations, investors are awaiting more data on inflation, unemployment, and wage levels in Japan.

US Bond Yields

The yield on 10-year US Treasury bonds fell by 0.2% on Tuesday, deepening its losses for the third straight session and reaching a three-month low at 4.186%, which is putting downward pressure on the US dollar exchange rate.

This development in the US bond market follows the US jobs report released on Friday, which revealed clear weaknesses in the labor market, prompting traders to expect the Federal Reserve to implement at least two interest rate cuts before the end of this year.

Goldman Sachs expects the Federal Reserve to carry out three consecutive 25-basis-point cuts starting in September, with the possibility of a 50-basis-point cut if the unemployment rate rises further in the next report.

Additionally, President Donald Trump's dismissal of a senior US statistics official and the resignation of Federal Reserve member Adriana Kugler have heightened market concerns about the stability of the world’s largest economy.