Yen surges on BOJ’s remarks; US dollar eases ahead of US inflation

THE yen jumped on Monday (Sep 11) as comments from Bank of Japan (BOJ) governor Kazuo Ueda stoked hopes that Japan could soon herald a new era away from negative rates, while the US dollar slid ahead of this week’s key US inflation reading.

The greenback tumbled ahead of US inflation data due on Wednesday, with traders on the lookout for whether the world’s largest economy is indeed on track for a “soft landing”, and whether the Federal Reserve has further to go in raising rates.

The Japanese currency was last 0.67 per cent stronger at 146.85 per US dollar. It had earlier surged more than 1 per cent to 145.91, its highest since Sep 1, boosted by weekend comments from Ueda that the central bank could end its negative interest rate policy when its 2 per cent inflation target was in sight.

Ueda told the Yomiuri newspaper in an interview that the BOJ could have enough data by the end of the year to determine whether it can end negative rates.

The yen has come under pressure against the US dollar as a result of growing interest rate differentials with the US since the Federal Reserve began its aggressive rate-hike cycle last year while the BOJ remains a dovish outlier.

“It seems that Ueda’s comments were intended to stop the yen’s slide against the US dollar,” Takehiko Masuzawa, trading head at Phillip Securities Japan, said. “His comments are working almost the same as government intervention.”

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Since the yen weakened past the 145 per US dollar threshold last month, traders have been on alert for any signs of intervention from Japan to shore up the currency. A year ago, that level prompted the first yen-buying intervention by the authorities since 1998.

The US dollar index, which measures the US currency against peers including the yen, was last down 0.1 per cent to 104.74, after sliding to an almost one-week low. Last week, it capped eight straight weeks of gains.

Against the weakening US dollar, sterling jumped 0.3 per cent to US$1.2507, distancing itself from a three-month low hit last week. And the euro gained 0.23 per cent to US$1.0725.

The greenback, along with US Treasury yields, had surged last week after a run of resilient economic data added to bets that further rate hikes from the Fed may be on the horizon.

Paul Mackel, gobal head of FX Research at HSBC, expects the US dollar to reverse course to stay in a strong position this week.

“The drivers for its rebound have not changed, namely solid US data,” he said.

The Aussie and the New Zealand dollar were among the biggest beneficiaries of the weakening US dollar, rising 0.78 per cent to 0.6428 and 0.53 per cent to 0.5914, respectively.

The two antipodean currencies, which are often used as liquid proxies for the Chinese yuan, also benefited from yuan strength.

China’s onshore yuan pulled away from Friday’s 16-year low after the central bank on Monday set the daily midpoint guidance with the strongest bias on record, signalling increasing discomfort with the currency’s recent weakness.

It was last 0.7 per cent higher at 7.2935 per US dollar, and its offshore counterpart was also up about 0.7 per cent to 7.3155 per US dollar.

China’s consumer prices returned to positive territory in August while factory-gate price declines slowed, data over the weekend showed, pointing to easing deflationary pressures amid signs of stabilisation in the economy.

“Historically, we do not see China’s inflation print negative numbers for very long, although I thought we might at least get a few more deflationary figures than the single one served,” Matt Simpson, senior market analyst at City Index, said.

Separate data on Monday showed that Chinese banks extended 1.36 trillion yuan (S$253.8 billion) in new yuan loans in August, up sharply from July and beating analyst expectations. REUTERS