Yen Gains in Post-Holiday Trading

The Japanese yen strengthened toward 158 per dollar on Tuesday, ending a two-session decline as investors returned from an extended holiday weekend. Market sentiment was influenced by data showing Japan’s producer prices rose 6.8% in September, below the expected 7.6% and marking the slowest increase since May. Nevertheless, the figures pointed to persistent inflationary pressures, reinforcing expectations of a potential near-term interest rate hike. Bank of Japan Governor Kazuo Ueda said the timing and pace of future rate increases would depend on how rising wholesale prices feed through to consumer inflation and affect household spending. However, uncertainty remained over whether the central bank would raise rates again this month, although markets continued to anticipate a possible move in December or January.

The Japanese yen traded around 158.2 per dollar on Monday, with trading activity expected to remain subdued due to a national holiday in Japan and a bank holiday in the US. Nevertheless, traders remained cautious as the currency hovered near the key 160-per-dollar threshold, a level that previously prompted Tokyo to intervene in support of the yen. The yen continued to face downward pressure from the wide interest rate differential between the US and Japan, amid relatively low domestic borrowing costs and the country’s substantial debt burden. Meanwhile, uncertainty persisted over whether the Bank of Japan would raise interest rates again this month, although markets continued to anticipate a possible move in December or January. BoJ Governor Kazuo Ueda noted that rapid monetary tightening was more commonly seen in North America and Europe in 2022, following pandemic-related supply chain disruptions and a strong recovery in demand.

The Japanese yen weakened past158 per dollar on Friday, heading for a fourth consecutive weekly loss amid persistent pressure from the wide interest rate gap between the US and Japan, as relatively low domestic rates and the country’s substantial debt burden continued to weigh on the currency. Meanwhile, data showed that Japan’s personal spending fell for a ninth consecutive month in August, as consumers remained cautious amid persistent inflation. On the monetary policy front, BOJ board member Ayano Sato, who previously opposed the central bank’s September rate hike, said this week she favored a gradual approach to raising interest rates in several stages, reinforcing expectations of further policy tightening. Elsewhere, Prime Minister Sanae Takaichi continued to pursue expansionary fiscal policies despite concerns over the weak yen and elevated bond yields, pledging to cut the consumption tax on food.