Yen surges on Ueda's comments; dollar unsteady before US inflation data

11 Sep 2023 , 09:39 AM

In contrast to the dollar, which was weak ahead of this week’s U.S. inflation reading, the yen gained momentum on Monday as comments from Bank of Japan (BOJ) Governor Kazuo Ueda fuelled optimism that Japan could soon usher in a new era away from negative rates.

The weekend remarks from Ueda that the central bank could abandon its negative interest rate policy when fulfilment of its 2% inflation objective is in sight helped the Japanese yen rise about 0.8% at one point, reaching a session high of 146.66 per dollar in early Asia trade.

Ueda stated in an interview with the Yomiuri newspaper that the BOJ may have enough information by year’s end to decide whether it can eliminate negative rates.

Since the Federal Reserve started its aggressive rate-hike cycle last year while the BOJ remains a dovish outlier, the yen has come under intense pressure against the dollar as a result of widening interest rate differentials with the US.

In other markets, the dollar dipped slightly lower, pulling back from three-month highs reached last week against the euro and the pound.

After an eight-week losing streak stopped on Friday, the euro gained 0.13% to $1.0714. The value of the pound rose 0.16% to $1.2486.

The dollar index decreased marginally to 104.84 after finishing the previous week with eight straight weeks of gains, its longest streak since 2014.

On Wednesday, the U.S. government will release its August inflation figures, which will help traders determine if the world’s largest economy is actually on track for a ‘soft landing’ and how far the Federal Reserve can raise interest rates.

The dollar and U.S. Treasury yields both increased last week as a string of strong economic data increased speculation about potential future rate hikes from the Federal Reserve.

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