Yen takes losses on BOJ meeting, dollar dominated by exchange rate outlook By Reuters

By Wayne Cole

SYDNEY (Reuters) – The yen remained under pressure on Friday as investors bet the Bank of Japan (BOJ) would end a policy meeting sounding cautious about further tightening, while the U.S. dollar had its own problems, as markets price faster US rates. cuts.

It was a tough week for the yen, with the euro gaining 2.2% to 159.46 as speculators took profit on recent yen long positions.

The euro also rose to $1.1160, up 0.8% this week and within striking distance of its August peak of $1.1201. A break there would target a July 2023 top of $1.1275.

The dollar rose 1.4 percent on the week to 142.84 yen, although below an overnight high of 143.95. Resistance was at 144.20, while support was at the recent low of 139.58.

The BOJ is expected to keep its policy interest rate at 0.25% later on Friday and maintain its view that the economy will recover moderately as rising wages support consumption.

Consumer price data released on Friday showed that core inflation rose to 2.8 percent in August, while headline inflation came in at 3.0 percent.

Samara Hammoud, a currency strategist at CBA, noted that Japan’s real rate remained deeply negative at around -2.5%, while the BOJ estimated neutral was in a range of -1% to 0 .5%.

“As such, there is scope to raise the policy rate further while maintaining accommodative financial conditions,” she said. “Our base case remains for the BOJ to raise rates by 25bp in October, although risk tilts towards a further hike.”

“Recent financial market crises and the upcoming Liberal Democratic Party election may make the BOJ more cautious about a hike.”

The BOJ’s policy statements can sometimes be quite opaque, so investors will focus on any clues from Governor Kazuo Ueda on the timing and pace of tightening at the post-meeting press conference.

The decline of the dollar

Much of the rest of the world is going the other way, with markets expecting China’s central bank to cut its long-term prime rates by 5-10 basis points on Friday.

China has also hinted at other stimulus measures, enabled in part by aggressive easing by the US Federal Reserve, which has pushed the dollar to a 16-month low against the yuan.

Markets are implying a 40% chance the Fed will cut another 50 basis points in November and price it at 73 basis points by the end of the year. Rates are seen at 2.85% until the end of 2025, which is now considered to be the Fed’s neutral estimate.

This dovish outlook bolstered hopes for continued US economic growth and triggered a major rally in risk assets. Currencies influenced by global growth and commodity prices also benefited, with a peak at $0.6800.

It stuck at 100.69 and just above a one-year low.

Sterling was another winner after the Bank of England kept rates unchanged on Thursday, while its governor said it had to be “careful not to cut too quickly or too much”.

The pound is up 1.1% for the week so far at $1.3276, its highest level since March 2022.