Yen recovers as BOJ expresses optimism, dollar weighed down by interest rate concerns
The yen trimmed its losses on Friday following a positive outlook from the Bank of Japan (BOJ) on growth and a cautious approach to further policy tightening. Meanwhile, the dollar faced pressure amid expectations of accelerated U.S. rate cuts.
This week saw the euro gain 2.2% against the yen, reaching 159.46 as traders locked in profits on long yen positions. The euro also strengthened against the dollar to $1.1160, nearing the August peak of $1.1201.
The dollar remained steady at 142.45 yen, retreating from an overnight high of 143.95, after the BOJ maintained its overnight call rate target at 0.25%. While the BOJ acknowledged a stable economy, it noted moderating Inflation, prompting caution among investors in pushing the yen lower.
Consumer price data released on Friday showed core Inflation at 2.8% in August, with overall Inflation hitting 3.0%. Despite this, Japan’s real rate remained deeply negative at around -2.5%, leaving room for further rate hikes while keeping financial conditions accommodative.
On the global front, China opted to keep benchmark lending rates unchanged, as markets anticipated additional stimulus measures. The U.S. Federal Reserve’s dovish stance pushed the dollar to a 16-month low against the yuan, prompting major state-owned banks in China to buy dollars to stabilize the exchange rate.
Market expectations suggest a 40% likelihood of another 50 basis points cut by the Fed in November and a total of 73 bps by year-end. This dovish outlook supported hopes for continuous U.S. economic growth, resulting in a rally in risk assets and currencies tied to global growth.
Sterling also saw gains after the Bank of England maintained rates and stressed the importance of cautious adjustments. The pound rose by 1.1% for the week to $1.3276, reaching its highest level since March 2022.
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Emma Collins, graduated in Financial Economics from the University of Chicago in the USA in 2016. She has since worked at an asset management firm in New York, where she specializes in investment strategies and portfolio management. Emma has a keen interest in financial analysis and has published several articles in renowned financial journals. Her work focuses on providing actionable insights to investors, and she is known for her forward-thinking approach to managing financial portfolios.