- Yen about to mark second weekly profit in row
- Strong odds of third Japanese interest rate hike this year
- Increasing odds of a 0.5% Fed rate cut
The Japanese yen rose in Asian trade on Friday, extending its gains for the fourth straight session against the dollar and scaling 2024 highs, and about to mark the second weekly profit in a row as hopes of decreasing the interest rate gap between Japan and the US improved.
Recent bullish remarks by Bank of Japan policymakers raised the odds of a third BOJ rate hike this year, with investors now waiting for crucial Japanese growth, inflation and wages data to get a clearer picture.
Otherwise, several media reports indicated the upcoming Federal Reserve rate decision next week will be more difficult than expected, leading traders to raise the odds of a 0.5% rate cut.
The Price
The USD/JPY pair fell 0.8% today to 140.65 yen per dollar, the lowest since December 2023, with a session-high at 141.87.
The yen rose 0.4% on Thursday against the dollar, the third profit in a row following bullish remarks from BOJ officials.
Weekly Trades
Yen is up 1.1% so far this week against the dollar, and about to register its second weekly profit in a row as the unwinding of yen carry trades resumed.
Aggressive Remarks
Bank of Japan member Junco Nakagawa said on Wednesday that the BOJ will continue to raise interest rates if the economy and inflation move as expected.
He said real interest rates remain too low, and the central bank will adjust its policy easing if the economic outlook was achieved.
Another BOJ member, Naoki Tamura, said on Thursday, the central bank should raise interest rates until 1% at least by the second half of the next financial year, but it should be done gradually.
Japanese Rates
Traders still see little chance of a Japanese rate hike in October, with most bets pointing to December as the likely date for the third BOJ rate hike this year.
US Rates
Interesting reports from the Wall Street Journal and Financial Times indicated that next week’s Fed interest rate decision will be more complex than expected, following recent labor data.
According to the Fedwatch tool, the odds of a 0.5% Fed rate cut in September surged to 45%, while the odds of a smaller 0.25% cut fell to 55%.
Rate Gap
Investors have sold the yen mercilessly for months due to the massive interest rate gap between Japan and the US.
The rate gap created profitable opportunities, with traders borrowing cheap yen to invest in dollar assets with higher yields, the so-called Carry Trade.
However, after the BOJ and the Fed’s latest decisions in July, the rate gap between Japan and the US shrank to 525 basis points, the smallest such gap since July 2023.
And now investors expect the gap will shrink to 500 basis points by September as the Fed prepares a new rate cut.
Ripple rose on Thursday as demand on cryptocurrencies rebounded strongly, with major central banks heading for interest rates cuts, in turn boosting liquidity and demand on high-risk assets.
The European Central Bank voted to cut interest rates by 25 basis points today as expected to 3.5%.
Earlier US data showed producer prices rose 1.7% in August, below July’s 2.1% reading, but core prices accelerated to 3.3%.
Other data showed US consumer prices rose 2.5% y/y in August, the lowest rate since February 2021, and below estimates of 2.6%.
Core prices rose 3.2% y/y last month, and 0.3% m/m, up from 0.2% in July.
US unemployment claims rose by two thousand to 230 thousand in the week ending September 7, while analysts expected a drop to 225 thousand.
As a result, the odds of a 0.5% Federal Reserve interest rate cut tumbled, with most investors now expecting a 0.25% rate cut.
Ripple
On trading, Ripple rallied 4.8% as of 21:09 GMT on Coinmarketcap to $0.5626.
Oil prices rose on Thursday amid concerns about supply disruptions as investors assess the Francine hurricane barrelling through US coasts right now.
The storm landed on Louisiana on Wednesday with 161 km/h winds, with coastal areas still reeling from long-lasting damage from a series of destructive storms in 2020 and 2021.
Otherwise, the International Energy Agency reduced its estimates for global demand growth on oil in 2024 due to Chinese economic weakness, with current growth estimated at 900 thousand bpd, down from 970 thousand in previous forecasts.
On trading, Brent November futures rose 1.9%, or $1.36 to $71.97 a barrel.
US October futures rose 2.45%, or $1.66 to $68.97 a barrel.
Gold prices rose on Thursday as the dollar lost ground against most major rivals, with the precious metal marking fresh record highs.
Earlier data showed producer prices rose 1.7% in August, below July’s 2.1% reading, but core prices accelerated to 3.3%.
Earlier data showed US consumer prices rose 2.5% y/y in August, the lowest rate since February 2021, and below estimates of 2.6%.
Core prices rose 3.2% y/y last month, and 0.3% m/m, up from 0.2% in July.
As a result, the odds of a 0.5% Federal Reserve interest rate cut tumbled, with most investors now expecting a 0.25% rate cut.
Otherwise, the dollar index fell 0.3% as of 20:10 GMT to 101.3, with a session-high at 101.8, and a low at 101.3.
On trading, gold spot prices rose 1.7% as of 20:10 GMT to $2584 an ounce.
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