Yen tapers off after massive daily profit

The Japanese yen fell in Asian markets on Monday at the start of the week’s trading against a basket of major and minor currencies, giving up a one-week high against the US dollar, as part of correction and profit-taking moves after a strong daily gain at the end of last week.

Following more hawkish comments by Bank of Japan Governor Kazuo Ueda at the annual Jackson Hole Economic Symposium, expectations rose that the central bank may soon resume policy normalization and raise interest rates after a pause since January.

Price Overview

• Today’s yen exchange rate: the dollar rose against the yen by 0.45% to (147.53¥), from Friday’s close at (146.86¥), with the lowest level during the day’s trading at (146.75¥).

• The yen ended Friday’s session up 1.0% against the dollar, its third daily gain in the past three sessions, and the biggest daily rise since August 1, after Fed Chair Jerome Powell hinted at a US interest rate cut in September.

• The yen posted a 0.2% gain against the dollar last week, its second consecutive weekly rise, driven by expectations of two Fed rate cuts before the end of this year.

US Dollar

The dollar index rose on Monday by 0.25%, recovering from a three-week low of 97.56 points, reflecting a rebound in US currency levels against a basket of global peers.

Beyond low-level buying, the dollar recovered at the start of the week, as markets await fresh evidence on the likelihood of a Fed rate cut in September.

According to London exchange data, traders now price an 84% probability of a 25 basis-point cut in September, with cumulative cuts of 53 basis points by year-end.

Powell said at Jackson Hole on Friday that shifting risk balances may warrant an adjustment in monetary policy, with current indicators showing rising downside risks in the labor market.

Kazuo Ueda

Bank of Japan Governor Kazuo Ueda said at Jackson Hole on Saturday that wage increases are spreading beyond large firms and are likely to continue accelerating due to a tightening labor market.

These remarks reinforced market expectations that the BOJ may resume rate hikes soon after its January move, with traders now seeing a potential increase at the October meeting.

Japanese Interest Rates

• Market pricing of a BOJ 25-basis-point hike in September is currently stable around 45%.

• To reassess these odds, investors are awaiting further data on inflation, unemployment, and wages in Japan.

Outlook for the Yen

• Homin Lee, chief macro strategist at Lombard Odier, expects the yen to strengthen to 140 per US dollar over a 12-month horizon, though he forecasts the policy rate will remain within a limited range in the near term.

• Lee said: “We assume the BOJ’s next rate hike will come in January next year, not October.” He added: “It is likely the bank will keep the real policy rate very low in deeply negative territory until year-end, only considering gradual rate increases thereafter.”