Mar 8 2024: The yen soared to a fresh five-week peak against the dollar on Friday amid reports suggesting that the Bank of Japan (BoJ) is increasingly open to the idea of raising interest rates and considering a new quantitative monetary policy framework.
Jiji news agency indicated that the BoJ is contemplating a framework to provide insights into upcoming government bond buying amounts. Concurrently, Reuters reported that an increasing number of BoJ policymakers could endorse ending negative interest rates this month, anticipating strong outcomes from this year’s annual wage negotiations.
The yen strengthened by 0.6% against the dollar, reaching 147.18, with an earlier peak of 146.87 yen, its highest level since early February. It has surged approximately 2% over the week, marking its most robust weekly percentage gain since mid-July, fueled by signs of a positive wage-price cycle sustaining inflation, paving the way for Japan’s first interest rate increase in 17 years.
Kathleen Brooks, Research Director at XTB, remarked, “The yen is rising as speculation mounts that the BoJ will buck the global central bank trend and hike interest rates later this month.” She added, “In the short term, a powerful downtrend seems to be building for USD/JPY, and we believe that this pair could test 145.00, especially if we see a moderation in U.S. payrolls growth later today.”
Meanwhile, the dollar index was on track for its most significant weekly decline since mid-December, pressured by remarks from Federal Reserve Chair Jerome Powell suggesting growing confidence in cutting interest rates in the coming months. Powell indicated that the Fed was nearing the required confidence level for rate cuts, typically resulting in currency depreciation as central banks reduce interest rates.
The dollar index slightly edged up by 0.01% to 102.78, yet it was still poised for its most substantial weekly drop since mid-December, down approximately 1% this week against a basket of six peers.
Investor focus remains on the U.S. job report, crucial for confirming or challenging market expectations of a U.S. rate cut by June. Economists anticipate a solid increase of 200,000 jobs following January’s robust gain of 353,000.
Weakening against the dollar, the euro faced pressure as European Central Bank (ECB) policymakers hinted at potential monetary policy easing. ECB policymaker Francois Villeroy de Galhau stated a strong consensus for lowering interest rates this spring, aligning with the ECB’s cautious approach toward inflation management.
The euro dipped by 0.16% to $1.0931 after touching an almost two-month high of $1.0956 during Asian trading, maintaining a year-long range. It posted a weekly gain of approximately 1% against the dollar.
