A US dollar bought ¥155.59 early in the Asian morning, not too far from the yen’s 10-month trough of ¥157.90 made in November, as markets fretted about Japan’s fiscal position and that policymakers were behind the curve in raising rates.
Investors are now all but sure Japan’s central bank will hike its short-term rate by 25 basis points to 0.75% later in the day, following hints from governor Kazuo Ueda in a speech earlier this month – meaning market moves will depend on his tone and the outlook.
Sources have told Reuters the BOJ will not publish updated findings of its neutral rate estimate, or use it as a key communication tool, relying on Ueda’s press conference at 6.30am to lay out the interest rate path.
“We expect a hike, long overdue based on fundamentals. But we don’t expect this move to spark a rally in the yen,” said Yuxuan Tang, global market strategist at JP Morgan Private Bank.
“The messaging from authorities will likely signal that the next move is some distance away.
“A surprise hold, however, could see the US dollar/Japanese yen spike sharply.
“In that scenario, authorities might face a market confidence crisis and be forced into direct interventions to stabilise the currency,” Tang said.
Euro dips as Lagarde rebuffs hawks
Overnight the dollar had briefly weakened following a sharp and unexpected fall in US inflation, but investors weren’t sure how far to trust the data since collection was interrupted by the US government shutdown, and the move soon retraced.
Sterling round-tripped to sit at US$1.3392 after the Bank of England cut interest rates to 3.75%, as expected, but the decision was closer-run than the market had anticipated which may limit the room for further easing.
The euro dipped about 0.1% overnight and traded at US$1.1724 in Asia, weighed down because European Central Bank (ECB) chief Christine Lagarde offered no forward guidance and said all options were on the table, pushing back against more hawkish members.
“In recent weeks, hawkish commentary from ECB executive board member Schnabel had driven a shift in the market’s assessment of the risks to policy moving forward,” ANZ analysts said in a note to clients.
“But (the) balanced tone signals Schnabel’s view that the next move is more likely to be a hike is not broadly shared across the council,” analysts said.
The ECB left its policy rate on hold at 2%, as expected.
Hold on
Norway’s crown rose slightly to 10.15 per dollar after the central bank left rates on hold at 4% and indicated it was in no hurry to cut.
There wasn’t much movement in the Swedish crown after rates were left on hold, as expected.
The Australian and New Zealand dollars were broadly steady at US$0.6614 and US$0.5770 respectively.
China’s yuan was firm in offshore trade, having hit an almost 15-month top of 7.031 per dollar overnight, while South Korea’s won has been under sustained selling pressure and was wobbly at 1477 per dollar in morning trade.
Bitcoin is pinned below US$90,000 and was steady at US$85,500.