Anna 
The Japanese yen continued its sharp ascent on Friday, heading for its most impressive weekly gain against the dollar in nearly five months, fueled by mounting expectations of an imminent end to Japan’s ultra-low interest rate era.
The yen’s broad strength placed a constraint on the dollar, which maintained a defensive posture ahead of the eagerly awaited U.S. nonfarm payrolls report scheduled for later in the day.
Bank of Japan (BOJ) Governor Kazuo Ueda’s remarks on Thursday, stating that the central bank had multiple options for interest rates once it withdraws short-term borrowing costs from negative territory, ignited market speculation that the BOJ could be on the brink of phasing out its ultra-loose monetary policy. This propelled the yen to multi-month highs against major currencies.
Against the dollar, the yen marked an almost 0.3% increase to 143.74, having surged over 1% earlier in the session. Thursday’s gain of over 2% represented the yen’s most substantial daily rise since January, and it was on track to conclude the week with a more than 2% surge.
Ray Attrill, Head of FX Strategy at National Australia Bank (NAB), commented, “Obviously, the markets got very excited,” highlighting the yen’s remarkable turnaround from a one-year low against the dollar just a month ago.
Sterling slumped to a two-month low of 179.56 yen on Friday, while against the euro, the Japanese currency stood at 155.15, not far from the previous session’s four-month peak of 153.215 per euro.
Attention now turns to the BOJ’s upcoming two-day monetary policy meeting on December 18 for potential signals regarding a policy shift. While some remain cautious, considering past disappointments, the market seems to perceive the December meeting as ‘live.’
Revised data on Friday revealed that Japan’s economy contracted more sharply than initially estimated in the third quarter, adding complexity to the central bank’s outlook.
In the broader market, the dollar displayed sideways movement, with currency movements outside the yen subdued ahead of the U.S. jobs data. The euro stabilized at $1.0783, facing a weekly decline of over 0.9%, while sterling was at $1.2595, heading for a weekly fall of nearly 1%.
The U.S. dollar index remained little changed at 103.67, poised to gain more than 0.4% for the week, attempting to recover from November’s substantial selloff.
Elsewhere, the Australian dollar rose 0.17% to $0.6613. In China, the yuan weakened against the dollar, potentially ending a three-week winning streak. Concerns over China’s growth outlook persisted, with Moody’s recent warnings about rising debt levels and potential bailouts for local state-owned enterprises.
William Xin, Fixed Income Portfolio Manager at M&G Investments, noted that Moody’s downgrade of China’s rating outlook was motivated by concerns over rising debt levels, though he pointed out that the move “failed to consider” Chinese policymakers’ emphasis on debt reduction over the years.
