Yen Holds Decline on Hawkish Fed Outlook

The Japanese yen traded around 156.1 per dollar on Thursday after sliding for three straight sessions, pressured mainly by the dollar’s strength following the latest Federal Reserve policy decision. The US central bank raised interest rates for the first time in three years and signaled additional tightening this year to contain inflation. The Bank of Japan is also expected to raise borrowing costs on Friday, with another increase anticipated by the end of January. On the geopolitical front, oil prices eased amid hopes that Saudi Arabia can restore energy flows through its East-West pipeline. The yen had climbed to seven-month highs earlier this month on expectations of more aggressive policy tightening by the BOJ, recent joint interventions by Tokyo and Washington, and prospects for increased capital repatriation by Japanese investors.

The Japanese yen weakened past 155 per dollar on Wednesday, extending its decline for a third consecutive session as the dollar strengthened ahead of an expected interest rate hike by the US Federal Reserve. The yen also came under pressure from rising oil prices, which are increasing import costs for Japan’s oil-dependent economy. Still, the Japanese currency remains supported by expectations of more aggressive policy tightening by the Bank of Japan, recent joint interventions by Tokyo and Washington, and prospects for greater capital repatriation by domestic investors. Markets are currently pricing in roughly an 80% chance of a BOJ rate hike on Friday, with another increase expected by the end of January. Meanwhile, data showed that Japanese exports rose more than anticipated in August, supported by strong demand for AI-related chips despite ongoing supply disruptions stemming from the conflict in the Middle East.

The Japanese yen weakened toward 155 per dollar on Tuesday, declining for a second consecutive session as the dollar strengthened ahead of an expected US Federal Reserve interest rate hike this week. The yen also faced pressure from rising oil prices, which increase import costs for Japan’s oil-dependent economy. Still, the Japanese currency remained near seven-month highs amid expectations for more aggressive monetary tightening by the Bank of Japan, the unwinding of carry trades and signs of increased asset repatriation by domestic investors. The BOJ is widely expected to raise its policy rate to 1.25% on Friday, its highest level since April 1995, as the central bank responds to persistent upside risks to inflation. Markets are also watching for guidance from the BOJ on the potential for another rate hike later this year.