The yen reached the highest level this year versus the dollar amid bets that Japanese monetary authorities will deliver further policy tightening this year, while markets braced for an expected interest-rate cut from the Federal Reserve next week.
Japan’s currency gained for a fourth straight day on Friday (Sep 13), by as much as 1.1 per cent. It touched 140.29 per dollar, the strongest since the end of December. In the US, traders are boosting bets on a possible half-point Fed rate reduction next week after a Wall Street Journal report that policymakers were still mulling that magnitude of easing, rather than a quarter-point.
Meanwhile, BOJ officials this week signalled further rate hikes are in play there. While most analysts expect the central bank to hold steady at its meeting next week, the remarks from the central bankers showed tightening is possible later in the year.
Over half of BOJ watchers see a hike in December. At the same time, traders are pricing in more than 100 basis points of Fed easing this year.
Against the backdrop of narrowing rate differentials, the yen has rebounded since touching the weakest level in decades around mid-year. It has gained more than 14 per cent since the end of June.
Asset managers are now the most bullish on the yen since March 2021, according to data through Sep 10 from the Commodity Futures Trading Commission. The yen trimmed its gain later in the day, trading near 140.93 in the New York afternoon.
Some hedge funds are also adding to wagers on yen strength in the options market on expectations the currency will extend its rally.
The yen can break through 140 per dollar if the Fed cuts by 50 basis points next week, according to Brad Bechtel, global head of foreign exchange at Jefferies Financial Group. The yen hasn’t been that strong in more than a year.
“With volatility coming from the Fed meeting and BOJ meeting next week, the yen may cross the 140 level next week,” said Takafumi Onodera, who’s in charge of sales and trading at Mitsubishi UFJ Trust & Banking in New York. “There is no strong reason to sell the yen now.” BLOOMBERG
