Anna 
The Japanese yen held its ground on Monday as the Bank of Japan (BOJ) commenced a two-day monetary policy meeting, leaving traders eager for insights into potential adjustments to its dovish policy stance.
Meanwhile, the U.S. dollar continued its descent, carrying over last week’s decline following the Federal Reserve’s policy meeting, where indications of possible interest rate cuts in the coming year emerged.
The yen steadied at 142.25 per dollar, displaying resilience after last week’s nearly 2% gain attributed to the weakening dollar.
Market volatility in the Japanese currency persisted over the past weeks as uncertainties lingered about the BOJ’s intentions regarding its negative interest rate policy. Governor Kazuo Ueda’s comments earlier in the month triggered a significant yen rally, although subsequent reports suggested a delay in policy changes until after December. Investors now await the BOJ’s decision on Tuesday for clarification on the bank’s rate outlook.
Rodrigo Catril, Senior FX Strategist at National Australia Bank, noted, “The meeting will be relevant and important in terms of what the BOJ does, and there are some in the market that still expect that maybe there’s a surprise.
Against the euro, the yen experienced a marginal decline of over 0.2%, reaching 155.27. However, it remained close to a four-month high of 153.215 per euro recorded earlier this month. Sterling maintained stability at 180.44 yen.
Rate Cuts Loom?
On other fronts, the U.S. dollar saw a broad decline, hovering near approximately five-month lows against the Australian and New Zealand dollars. The Aussie climbed 0.37% to $0.6727, near last week’s peak of $0.6728, while the kiwi rose by 0.6% to $0.6244.
Market sentiment remained positive, fueled by the expectation that the Fed might initiate rate cuts early next year. Futures markets indicated a roughly 75% chance of the first cut occurring as early as March, according to the CME FedWatch tool.
The dollar, which had been supported by aggressive rate hikes and expectations of prolonged higher rates throughout 2022 and 2023, experienced a 0.17% dip, reaching 102.45 against a basket of currencies. The dollar index witnessed a notable 1.3% decline last week.
Franck Dixmier, Global Chief Investment Officer for Fixed Income at Allianz Global Investors, commented, “The Fed has officially opened the door to the next cycle of rate cuts.”
While the European Central Bank (ECB) and Bank of England (BoE) maintained steady interest rates in their respective meetings last week, the Fed’s approach contrasted by signaling openness to rate cuts. The euro rose 0.22% to $1.0916, while sterling gained 0.08% to $1.2690.
However, the euro faced downward pressure due to a dimming growth outlook in the eurozone. Recent data revealed a deepening downturn in the bloc’s business activity, hinting at a possible recession.
