The yen was up 0.38 % at 145.75 per dollar on Friday after Ueda reaffirmed his resolve to raise rates if inflation stayed on course to reach the 2% target, but cautioned financial markets remained unstable
The yen gained on Friday as traders considered comments from Bank of Japan Governor Kazuo Ueda, who sought to calm nerves after a rate hike last month, while markets braced for a speech from U.S. Fed Chair Jerome Powell.
With the focus on the central bankers, Ueda appeared first in Japan’s parliament to explain the rate increase that had rattled investors.
The yen was up 0.38 % at 145.75 per dollar on Friday in choppy trading after Ueda reaffirmed his resolve to raise rates if inflation stayed on course to sustainably reach the 2% target, but cautioned financial markets remained unstable.
His comments suggest that market turbulence won’t deter the BoJ from considering more rate hikes in the future even if the next move is not imminent, according to Vasu Menon, MD of investment strategy at OCBC.
As long as the move in the dollar-yen is orderly and gradual, this should not rattle global markets as much as it did earlier this month, Menon added.
Bouts of Japanese interventions and the interest rate hike in July tripped up investors who unwound the popular carry trade, in which traders borrowed yen to finance high-yielding assets, pulling the yen away from the 38-year lows reached last month.
The dollar index was down 0.11% at 101.35 after adding 0.34% in the earlier session, but it remained near the 2024 low of 100.92 it reached on Wednesday. The index is headed for fifth consecutive week of losses.
Markets are now pricing in a 73.5% probability of the Fed reducing rates by 25 bps at its September meeting, according to the CME FedWatch tool, with traders backing away from bets on a 50 basis point cut next month.
Traders are expecting 100 basis points of easing in the next three meetings left in the year, although some analysts think markets are being far too aggressive and could be disappointed if Powell is cautious.
Blerina Uruci, chief US economist at T Rowe Price, expects Powell to provide stronger guidance that the easing cycle is about to start and about the pace of cuts in the coming months.
Given market pricing of an aggressive cutting cycle over the next year, this will likely be perceived as a hawkish speech, Uruci said.
