Banknotes of yen and dollar are seen in this illustration picture in September 2022. The dollar strengthened today against the yen, marking a notable return to its upward trajectory, following signals from Japan’s central bank hinting at potential tightening of monetary policy in the near future, although the exact timeline for any rate increase remained ambiguous.
NEW YORK >> Today, the dollar gained ground against the yen, continuing its recent streak of appreciation as Japan’s top central bank official indicated possible monetary policy tightening on the horizon. Bank of Japan Governor Kazuo Ueda emphasized that the Japanese economy is on a path toward sustained wage-driven inflation and cautioned against maintaining excessively low borrowing costs, thereby opening up the possibility of an interest rate hike as early as next month.
These remarks were Ueda’s first comments on monetary policy following Donald Trump’s recent election victory in the United States two weeks prior. However, Ueda was non-committal regarding any potential rate hike in December, noting various “uncertainties” that warranted careful assessment before making any decisions.
Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, noted, “The Bank of Japan governor didn’t give any fresh signals.” He further commented on the prevailing market sentiment, stating, “Because of the chaos caused in July, the market is anticipating that BoJ would better prepare the market for the next move, and the Bank of Japan governor didn’t do that today, and so I think the yen weakened.”
The BOJ had unexpectedly raised short-term interest rates during its July meeting, which had a significant impact on market expectations.
The dollar strengthened 0.17% to 154.6 yen. The greenback had snapped a four-session rise against the Japanese currency recently after Finance Minister Katsunobu Kato issued a warning that authorities would take action to mitigate excessive fluctuations in exchange rates.
The market was pricing a roughly 54% chance of a quarter-point hike at its next policy meeting on Dec. 19, a figure that showed little change from the outlook before Ueda’s speech.
The dollar index, which measures the greenback against a basket of currencies, fell 0.5% to 106.20, with the euro rising 0.54% to $1.0598. Notably, the index reached a more than one-year high last week of 107.07, buoyed by expectations that a Trump victory could lead to higher tariffs, potentially stoking inflation and slowing the pace of rate cuts from the Federal Reserve.
Two high-ranking European Central Bank officials indicated today they were more concerned about the detrimental impact that anticipated new U.S. trade tariffs could have on economic growth in the eurozone rather than any implications for inflation.
Recent statements from Fed officials, including Chair Jerome Powell, have suggested that the central bank is taking a measured approach in its rate-cutting strategy. In a relatively light week for U.S. economic data, the National Association of Home Builders/Wells Fargo Housing Market Index climbed to 46 this month, its highest level since April, up from 43 in October, driven by optimism that the recent elections would foster regulatory changes to promote residential construction.
Markets are keenly awaiting the announcement of Trump’s choice for Treasury Secretary, with various media reports indicating that the list of potential candidates has expanded to include former Federal Reserve Governor Kevin Warsh and billionaire executive Marc Rowan.
“My sense is looking at the appointments and even this discussion about the Treasury secretary, and wanting to be sure that the Treasury secretary endorses tariffs,” said Chandler.
Sterling strengthened 0.47% to $1.2674 following a sharp 2.4% drop last week, marking its largest weekly percentage decline since early February 2023.
In the cryptocurrency market, bitcoin decreased by 1.82%, trading at $90,114.00.
What does Marc Chandler predict for the dollar-yen exchange rate in light of potential BOJ monetary policy changes?
**Interview with Marc Chandler, Chief Market Strategist at Bannockburn Global Forex**
**Editor:** Thank you for joining us today, Marc. The dollar has strengthened against the yen following comments from Bank of Japan Governor Kazuo Ueda. Can you explain what Ueda’s remarks signal for potential monetary policy changes in Japan?
**Marc Chandler:** Certainly! Governor Ueda hinted that the Japanese economy is moving toward sustained wage-driven inflation, which is a significant shift. When he cautioned against maintaining excessively low borrowing costs, it opened the door to discussions about possible interest rate hikes. However, he was quite ambiguous about the timeline, particularly without offering fresh signals, which has left the market in a state of cautious anticipation.
**Editor:** It’s been a bit chaotic in the markets recently, especially after the unexpected interest rate increase in July. How do you think that previous action affects current investor sentiment?
**Marc Chandler:** The July meeting certainly rattled the market. Investors are still digesting that surprise and trying to predict the Bank of Japan’s next moves. There’s a sense now that the Bank of Japan should prepare the market better for any adjustments, and given Ueda’s remarks, people are reassessing the risks. The current weakness of the yen suggests a lack of confidence in immediate action from the BOJ.
**Editor:** The dollar gained around 0.17% against the yen today, but before that, there was a suggestion of intervention from Japan’s Finance Minister. How do you think that affects trading dynamics?
**Marc Chandler:** Absolutely. The Finance Minister’s warning about excessive fluctuations had an immediate impact on how traders view the dollar-yen exchange. Many are now watching closely for potential interventions. While today’s strengthening of the dollar may seem favorable, apprehension about government action can create volatility and hesitation among traders. They want to avoid stepping into a situation that might prompt a government response.
**Editor:** Lastly, how do you see the outlook for both currencies in the coming weeks, especially with the upcoming BOJ meeting in December?
**Marc Chandler:** It’s a bit of a waiting game right now. The market is pricing in a roughly 54% chance of a quarter-point hike at the December meeting, which shows that there is some expectation of movement. However, with the uncertainties Ueda mentioned, we could see continued volatility. The dollar may remain strong in the short term unless the Bank of Japan provides clearer guidance or if we see any unexpected developments in the broader economy.
**Editor:** Thank you for your insights, Marc. It will be interesting to watch how this situation unfolds as we approach December.
**Marc Chandler:** Thank you for having me!