Bitcoin rises as Japan holiday dampens most currencies

SINGAPORE (Reuters) – Bitcoin was the standout mover as it hit one-month highs, sustaining its momentum following the Federal Reserve’s super-sized interest rate cut last week, while the yen and most other major currencies stagnated with markets Japanese on vacation. .

The dollar strengthened against the yen last week after political meetings in the United States and Japan, hitting a two-week high of 144.50 yen. It was around 144.08 early Monday.

The Bank of Japan (BOJ) left interest rates unchanged last week and indicated it was in no rush to raise them again. That decision, which came just days after the Fed cut interest rates by 50 basis points, put a pause on the yen’s strong gains this month. The currency rose 1.4% in September.

With Japan closed for the Autumn Equinox Day, the main driver of trade was expectations of further Fed interest rate cuts and the gains they spurred in stocks, commodity currencies and other risk assets.

Bitcoin rose 0.8% above $63,200 and not far from one-month highs. The Australian dollar held steady around $0.68, snapping its more than 3% gain in less than two weeks.

The US dollar index, which measures the greenback against major currencies, gained slightly to 100.8, continuing to hold above the one-year low it hit last week.

The Fed’s rate cut “appears to have calmed market fears of a US recession,” Goldman Sachs said in a note. “Our G10 FX team expects a slight rebound for the US dollar over the next 3 months before easing again on a 6- and 12-month view.”

Fed futures traders have priced in rate cuts of 75 bps by the end of this year and nearly 200 bps in cuts by December 2025, which will take the Fed’s policy rate by the end of 2025 to 2.75%, according to CME FedWatch.

The U.S. Treasury yield curve flattened after the Fed cut interest rates, and investors added to bets in favor of a second broad rate cut after Fed Governor Christopher Waller said on Friday he was concerned that inflation could soon be below its target 2% of the central bank.

Meanwhile, most economists polled by Reuters anticipate two more 25 bps rate cuts at the Fed’s final two meetings this year.

In weekend news, US Republicans unveiled a three-month temporary bill to avoid a government shutdown.

As for the yen, an upcoming ruling party vote later this week to elect a new prime minister makes the BOJ’s job difficult in the coming months. Snap elections are seen as likely in late October.

The Liberal Democratic Party’s front-runners to replace incumbent Prime Minister Fumio Kishida have offered mixed views on monetary policy.

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Sanae Takaichi – who would become the nation’s first female prime minister – is a reflationist who has accused the Bank of Japan of raising interest rates too soon. Shigeru Ishiba said the central bank was “on the right political path”, while Shinjiro Koizumi, the son of charismatic former prime minister Junichiro Koizumi, has so far said only that he would respect the BOJ’s independence.

The selection poses two-way risks to the yen, Barclays analysts wrote over the weekend. “The main risk here is that if Abenomics advocate Takaichi wins, it could create a roadblock for the BOJ’s policy normalization plan and raise concerns about fiscal discipline,” they said.

That could lead to a steeper Japanese bond curve and downward pressure on the yen as investors reduce expectations for another rate hike, they said.

The Bank of England kept interest rates unchanged on Thursday, with its governor saying the central bank must be “careful not to cut too quickly or too much”.

The pound fell 0.1 percent to $1.3310, remaining close to Friday’s highs, after the release of strong UK retail sales data.

(Reporting by Vidya Ranganathan in Singapore; Editing by Jamie Freed)