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The Japanese yen strengthened on Wednesday as investors solidified bets on the Bank of Japan (BOJ) potentially exiting stimulus measures in the coming months. Meanwhile, the U.S. dollar maintained its overall strength against major counterparts, supported by expectations that the Federal Reserve would not hastily cut interest rates.
The yen gained up to 0.41%, reaching 147.76 per dollar during Tokyo trading hours, propelled by a surge in Japanese government bond yields. BOJ Chief Kazuo Ueda’s comments on Tuesday, expressing increased prospects of achieving the inflation target, contributed to the yen’s momentum. A retreat in long-term U.S. Treasury yields further boosted the Japanese currency.
The dollar dipped 0.3% against the yen, trading at 147.90, although it has posted nearly a 5% gain for the year. The dollar’s strength is attributed to reduced expectations of early Fed rate cuts and a delayed anticipation of a BOJ stimulus exit following a recent hawkish shift.
Ray Attrill, Head of FX Research at National Australia Bank, noted that Ueda’s comments instilled more confidence in the market, suggesting that April is a potential live date for a policy exit. He indicated that a test of 150 for the dollar-yen pair is more likely in the near term, with the possibility of a move upwards in Treasury yields after an overly aggressive pricing out of near-term Fed rate cut risks.
In the U.S., the rate futures market on Tuesday priced in around a 47% chance of a March rate cut, down from about 80% two weeks ago. For 2024, futures traders anticipate five quarter-point rate cuts, compared to the previous expectation of six.
The U.S. Dollar Index, tracking the greenback against six rivals, edged down 0.07% to 103.43 but remained close to the highest level since December 13.
Regarding other major currencies, the euro added 0.11% to $1.0864, rebounding from Tuesday’s low of $1.0822. Sterling was 0.13% higher at $1.2703, recovering from an overnight dip. The Bank of England is set to announce its policy decision on February 1.
The Bank of Canada, meeting on Wednesday, is expected to leave its key overnight rate unchanged at 5%. The greenback rose slightly against the Canadian dollar to C$1.34695.
In the cryptocurrency space, bitcoin steadied around $39,700 after a recent slide, driven by traders unwinding bullish positions built on anticipation of U.S. approval of the country’s first spot bitcoin exchange-traded fund (ETF). Bitcoin had surged to a record $49,048 on January 11, a day after approval, but later retreated to $41,509 as traders sold the token in a typical sell-the-fact move.
