SYDNEY, Sept 20 (Askume) – The yen remained under pressure on Friday as investors expected the Bank of Japan (BOJ) to be cautious about further rate tightening after its policy meeting, while the dollar faced its own problems in market bets that interest rates will be cut further.
It has been a tough week for the yen, with EURUSD rising 2.2% to 159.46 as speculators took profits from their recent long yen positions.
The euro also rose 0.8% this week to $1.1160, slightly below August’s peak of $1.1201. This level aims for a peak of $1.1275 in July 2023.
USD/JPY rose 1.4% on the week to 142.84 yen, but was down from an overnight high of 143.95 yen. Resistance is at 144.20 and support is at the recent low of 139.58.
The Bank of Japan is expected to keep its policy rate unchanged at 0.25% on Friday and maintain its view that the economy will improve slightly as rising wages boost consumption.
Consumer price data released on Friday showed that the core inflation rate reached 2.8% in August, and the overall inflation rate reached 3.0%.
CBA currency strategist Samara Hammoud said Japan’s real interest rate remains highly negative at around -2.5%, while the Bank of Japan estimates the neutral interest rate will be between -1% and 0.5%.
“There is therefore room for further policy rate hikes while maintaining favorable financial conditions,” he said. “Our base case is that the Bank of Japan will next raise interest rates by 25 basis points in October, although there is a risk of further rate hikes later.”
“The Bank of Japan is likely to be more cautious in borrowing due to recent financial market turmoil and the upcoming Liberal Democratic Party election.”
Bank of Japan policy statements can sometimes be vague, so investors will be watching for cues from Governor Kazuo Ueda on the timing and pace of policy tightening in his post-meeting press conference.
The dollar falls
With much of the rest of the world moving in the opposite direction, China’s central bank is expected to cut its long-term key interest rate by 5-10 basis points on Friday.
China has also signaled additional stimulus measures, partly driven by the Federal Reserve’s aggressive easing, which has sent the dollar to a 16-month low against the yuan.
The market estimates that there is a 40% chance that the Federal Reserve will cut interest rates by 50 basis points in November and 73 basis points by the end of the year. Rates are expected to remain at 2.85% by the end of 2025, which is currently considered the Fed’s neutral forecast.
The soft stance boosted expectations of continued growth in the US economy and risk assets rose. Currencies also benefited from global economic growth and rising commodity prices, with AUD/USD rising above $0.6800.
The US dollar index is hovering at 100.69, just above a one-year low.
Sterling also rose after the Bank of England kept interest rates on hold on Thursday , while the governor said it must “be careful not to cut rates too quickly or too much”.
Sterling is up 1.1% so far this week at $1.3276, reaching its highest level since March 2022.
