Dollar down, yen awaiting crucial BOJ conclusion

19 Dec 2023 , 09:37 AM

Tuesday saw a significant increase in the value of the yen ahead of the Bank of Japan’s (BOJ) policy announcement later in the day, which some traders believe will be significant in deciding whether and when the central bank will abandon negative interest rates.

When its two-day meeting ends, the BOJ is expected to stick with its ultra-loose monetary policy.

Even still, investors will be analysing the results to look for clues about when the BOJ would abandon its unconventional stance on major economies, especially after Governor Kazuo Ueda’s remarks earlier this month fueled rumours of an impending change in policy.

The yen strengthened more than 0.3% versus the US dollar to 142.31, not far from a four-month high of 140.95 reached last week.

Since hitting a year-low of 151.92 in November, the value of the Japanese yen has increased by over 6%, partly as a result of the dollar’s general decline and speculation that Japan’s ultra-low interest rate environment may be coming to an end.

The euro dropped 0.26% to 155.67 yen, while the yen’s overnight volatility peaked on Monday at 29.655% after hitting a record high since July.

In other markets, the Australian and New Zealand dollars outperformed the US dollar, which was weakening due to the risk-averse currencies’ expectation that the US Federal Reserve may start lowering interest rates as early as next year.

The Australian dollar increased by 0.02% to $0.6708 after reaching its highest level since July 31 at $0.6736 during the previous session.

The kiwi also increased by 0.1% to $0.6218, not too far from the peak of $0.6250 on Monday.

Although several Federal Reserve officials have refuted market assumptions regarding the timeline for rate cuts by the Federal Open Market Committee (FOMC), their remarks have not significantly impacted market valuations or halted the depreciation of the US dollar.

The Fed is not precommitting to lowering rates quickly, according to Chicago Fed President Austan Goolsbee, and the surge in market expectations that it will is inconsistent with the way the American central bank operates.

This week’s reading on the Fed’s favoured gauge of underlying inflation, the core Personal Consumption Expenditures Price Index (PCEPI) is expected to shed more light on whether inflation has decreased enough for the Fed to start relaxing monetary policy next year.

The euro fell 0.01% to $1.0921, while sterling increased by 0.07% to $1.2656.

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