Yen Surges on BOJ's Hawkish Hint

23 Aug 2024 , 10:58 AM

The yen climbed on Friday as traders weighed comments from Bank of Japan Governor Kazuo Ueda, who sought to assuage fears following a surprise rate hike last month, and markets awaited a speech from Federal Reserve Chair Jerome Powell.

With the attention on central bankers, Ueda appeared first in Japan’s parliament to explain the rate hike that had alarmed markets.

The yen rose 0.5% to 145.58 per dollar as Ueda underlined his intention to hike interest rates if inflation remained on track to meet the 2% objective, but warned financial markets remained volatile.

Interventions and an interest rate hike in July tripped up investors, who unwound the popular carry trade, in which traders borrowed yen to finance high-yielding assets, pulling the yen away from the 38-year lows reached last month.

The move, combined with fears of a US recession, sparked a large global selloff in early August, but most markets have since recovered.

The dollar index, which measures the greenback against six major counterparts, fell 0.11% to 101.35 after increasing 0.34% the previous session, although it remained near to the 2024 low of 100.92 reached on Wednesday. The index is on track for a fifth consecutive week of declines.

Fed members on Thursday lined up in support of the United States beginning interest rate decreases next month now that inflation has fallen from its highs and the labour market has cooled, while one indicated he is not in a hurry to loosen policy.

Kansas City Fed President Jeff Schmid, one of the US central bank’s most hawkish members, stood out amid the throngs of policymakers speaking on Thursday.

That sets the setting for Fed Chairman Powell, who is scheduled to speak at a central bank gathering in Jackson Hole, Wyoming, later on Friday. Traders will be watching to see when and by how much the Fed may decrease borrowing costs.

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