Anna 
The Japanese yen experienced a sharp decline on Tuesday after the Bank of Japan (BOJ) kept its ultra-dovish stance and provided no indications of an upcoming policy pivot. The yen was the worst-performing currency in Asia, down 0.6%, as the BOJ decided to maintain interest rates at negative levels and refrained from signaling any tightening of policy in the near term. Although Governor Kazuo Ueda had previously hinted at potential policy tightening in 2024, the central bank emphasized the need for ongoing ultra-loose policy due to increased economic risks in Japan.
Despite the BOJ’s dovish stance, the yen remained near recent five-month highs against the dollar, rebounding sharply following dovish signals from the Federal Reserve last week. Most Asian currencies, while slightly softening on Tuesday, had posted strong gains against the dollar over the past week after the Fed signaled it was done raising interest rates and might consider rate cuts in the coming year.
The Australian dollar rose 0.2%, staying close to five-month highs, while the Chinese yuan fell 0.1% ahead of a People’s Bank of China decision on loan prime rates later in the week. Concerns over China’s economic performance continued to impact sentiment in Asian markets, following disappointing economic readings for November.
The dollar index and dollar index futures traded flat in Asian trade on Tuesday, showing a strong rebound from four-month lows in the past two sessions. Despite a series of statements from Fed officials downplaying expectations of an imminent rate cut, Fed Fund futures prices indicated a nearly 63% chance of a rate cut in March 2024. Goldman Sachs analysts predicted that the Fed would cut rates five times in 2024, with the bulk of the cuts biased towards the first half of the year.
