Yen drops as hopes of BOJ rate cut fade

by Jonathan Adams
Yen

The dollar gained as much as 146.46 yen and last bought 146.08 yen, up 0.78 per cent

The U.S. dollar rallied against Japan’s yen on Monday after a report stated the Bank of Japan saw little need to end negative interest rates in December, contrary to some investors’ anticipations.

Meanwhile, China’s yuan dropped to a three-week low after data showed deflation in the country worsened in November.

The dollar gained as much as 146.46 yen and last bought 146.08 yen, up 0.78 per cent. That reversed some of the sharp decline against the Japanese currency late last week, when bets grew that the BoJ may end negative interest rates as soon as next week.

Bloomberg reported on Monday that Bank of Japan officials have yet to see enough evidence that wage growth is strong enough to justify ending its ultra-loose monetary policy this month, citing people familiar with the matter.

The dollar’s rise against the yen helped push the dollar index, which tracks the currency against six rivals, 0.15 per cent higher to 104.12.

This is not surprising, said Simon Harvey, head of FX analysis at Monex Europe. It just goes to show there is not a free lunch when it comes to speculating on the BoJ.

We think that January poses a more opportune moment rather than December. Next week’s meeting is going to come in thinner liquidity positions, there isn’t as much space to follow up in terms of navigating markets through the change in conditions, Harvey added.

The euro was little changed at $1.0761, near Friday’s more than three-week low of $1.0724, while sterling was also flat at $1.2551.

Investors’ focus this week will be on U.S. inflation numbers for November, due on Tuesday, and the Fed’s interest rate decision on Wednesday. The ECB and the BoE set rates on Thursday.

Economists think U.S. inflation likely slowed to 3.1 per cent in November year-on-year, from 3.2 per cent in October. And they expect the Federal Reserve to hold interest rates at the current 5.25 per cent to 5.5 per cent level for a third meeting in a row.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Trading and Investment News. The information provided on Trading and Investment News is intended for informational purposes only. Trading and Investment News is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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