Yen jumps to a 3-month high on policy shift

2023-12-08
Summary:

The Japanese yen rose as the BOJ considered exiting ultra-low rates. The Fed and ECB expect rate cuts to boost bullish sentiment.

The Japanese yen extended rally on Friday as the BOJ discussed a potential exit from its ultra-low interest rate plan. The Fed and the ECB are expected to cut rates next year, adding to bullish sentiment.

The yen surged 2.39% against the dollar on Thursday, its biggest one-day jump since 12 Jan. Governor Kazuo Ueda said that policy management would "become even more challenging from the year-end and heading into next year."


Markets see about a 21% chance that the BOJ hikes rates at its final meeting of the year on 19 Dec, according to LSEG data. Japanese government bonds also saw a sharp sell-off, with yields on the 10-year Japanese government bond up 10.3 basis points, the most since July 28.

Japan's real wages declined for a 19th consecutive month in Oct, government data showed on Friday, highlighting that cost-push pressures continue to stifle consumers' purchasing power.


That means officials should make bigger efforts to tame inflation and prompt salary rise to shore up consumer confidence, so the first interest rate hike in decades could happen sooner than later.


However, Japan’s economy lost an annualized 2.9 percent in the third quarter, more than a previously estimated 2.1 percent contraction, complicating the central bank’s monetary decision.

USDJPY

The dollar against the yen hit its 3-month low, which brings into focus the 200 SMA. If today’s US jobs report does not surprise, we could see a break below 140 in the following sessions.


Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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