- BOJ won’t raise interest rates this week
- Fed prepares for rate cut
The yen rose in Asian trade on Wednesday against a basket of major rivals, resuming gains against the US dollar after a short hiatus yesterday and approaching 14-month highs once more as the pressure renews on yen carry trades before the Federal Reserve’s policy decisions later today.
Virtually all analysts expect the Fed to commence a new policy easing cycle today to boost growth.
Conversely, the Bank of Japan is widely expected to maintain interest rates unchanged this week, with a likely rate hike in December.
The Price
The USD/JPY pair fell 0.8% today to 141.29 yen per dollar, with a session-high at 142.41.
Yen closed down 1.3% on Tuesday against the dollar, marking the first loss in six days, and the heftiest since August 15 on profit-taking off 14-month highs at 139.58.
The yen was additionally pressured by stronger than expected US retail sales data for August.
The BOJ
The Bank of Japan is convening this week to discuss policies, and is expected to maintain current monetary tools unchanged.
As for October, there’s a 19% chance of a BOJ interest rate hike then, and a better 25% chance of a rate hike in December.
Bank of Japan Governor Kazuo Ueda said last month the BOJ will continue to raise interest rates if inflation maintains its upward momentum.
Ratings agency Fitch expects the BOJ to be cautious moving forward, and will allow the effects of the July rate hike to manifest completely before making another move.
The Fed
The Federal Reserve is wrapping up its two-day policy meeting today, and is widely expected to launch a new cycle of monetary easing.
According to the Fedwatch tool, the odds of a 0.5% Fed interest rate cut this week stood at 65%, while the odds of a smaller 0.25% rate cut stood at 35%.
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 this week as the Fed prepares a new rate cut, and might even shrink to 475 basis points if the Fed went ahead with a 0.5% rate cut.
US stock indices gained ground on Tuesday ahead of the Federal Reserve’s meeting and policy decisions tomorrow.
Earlier government data showed US retail sales rose 0.1% in August, after a 1.1% rise in July, while analysts expected a drop of 0.2% in August.
According to the Fedwatch tool, the odds of a 0.5% Fed interest rate cut this week stood at 67%, while the odds of a smaller 0.25% rate cut stood at 33%.
Federal Reserve officials are convening on Tuesday and Wednesday to discuss policies, and they’re widely expected to commence a new policy easing cycle to boost growth.
On trading, Dow Jones rose 0.2% as of 17:07 GMT, or 90 points to 41,712, while S&P 500 rose 0.4%, or 20 points to 5653, as NASDAQ added 0.7% to 17,716.
- World’s most valuable cryptocurrency approaches $60,000
- US yields drop to 15-month nadir
Bitcoin rose over 2% on Tuesday, resuming gains after a three-day hiatus, and approaching two-week highs once more, while trading above the psychological barrier of $60,000.
US 10-year treasury yields tumbled to 15-month lows ahead of the Federal Reserve’s policy decision tomorrow.
The Price
Bitcoin rose 2.1% at Bitstamp to $59435, with a session-low at $57627.
On Wednesday, bitcoin slid 1.55%, marking the third loss in a row on profit-taking off two-week high at $60,670.
Crypto Market Value
Crypto market value rose $45 billion to $2.145 trillion as both bitcoin and ethereum rebounded.
US Yields
US 10-year treasury yields fell 0.6% on Tuesday on track for the third loss in a row, plumbing 15-month lows at 3.599%, and improving risk appetite.
The losses came amid increasing speculation about the likely size of the Federal Reserve interest rate cut this week.
The Fed
The Federal Reserve is meeting today to discuss policies, and is expected to start a new cycle of monetary policy easing.
According to the Fedwatch tool, the odds of a 0.5% Fed rate cut this week surged to 69%, while the odds of a smaller 0.25% cut fell to 31%.
- US 10-year treasury yields lose ground
- Fed commences policy meeting today
- Strong odds of a 0.5% Fed rate cut
The US dollar fell in European trade on Tuesday against a basket of major rivals, extending losses for the fourth straight session and plumbing three-week lows as US 10-year treasury yields lost ground.
Recent media reports boosted the odds of a 0.5% Fed rate cut this week, with investors now waiting for important US retail sales data later today to gather more clues.
The Federal Reserve is meeting today to discuss policies, and is expected to start a new cycle of monetary policy easing.
The Price
The dollar index fell 0.2% today to 100.57, the lowest since August 28, with a session-high at 100.77.
The index lost 0.4% on Monday, the third loss in a row, as US treasury yields declined.
US Yields
US 10-year treasury yields fell 0.4% on Monday, extending losses for the third straight session, and about to plumb 15-month lows at 3.605%.
The developments came amid increasing speculation about a huge Fed rate cut this week.
US Rates
Interesting reports from the Wall Street Journal and Financial Times indicate that this 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 this week surged to 69%, while the odds of a smaller 0.25% cut fell to 31%.
US Retail Sales
Later today, important US retail sales data for August will be released. Retail sales reflect the strength of consumer spending, which constitutes 70% of total GDP.
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