May 25, 2023
Yen Weakens Past 140 Per Dollar as Fed Hike Bets Spur US Yields
(Bloomberg) -- The yen weakened beyond 140 per dollar for the first time since November as traders moved to price in another Federal Reserve interest-rate increase, underscoring diverging expectations of monetary policy in Japan and the US.
Japan’s currency fell to 140.23 on Thursday, the weakest level since Nov. 23, before paring some losses and traded 0.2% stronger at 139.82 on Friday. The yen has declined 6.2% this year against the dollar.
When dollar-yen moves, “it always moves big,” said Brad Bechtel, a foreign-exchange strategist at Jefferies. “So we’ll see, maybe we’ll be at 143 next week.”
Traders fully priced in another quarter-point rate increase by the Fed within the next two policy meetings and a more than one-in-two chance that a hike could come as soon as next month. That contrasts with the Bank of Japan’s policy as Governor Kazuo Ueda has repeatedly said he will patiently continue with monetary easing.
Ueda indicated his desire to hold on to policy flexibility by playing down the importance of wages or any single economic dataset as a trigger for change. He did not rule out a policy shift even if inflation is below 2%.
“The latest string of remarks did not present anything new,” Barclays chief yen rates strategist Shinji Ebihara writes in note. “We still believe the latest remarks as a whole suggest the BOJ is unlikely to make early policy revisions.”
In the US, the yield on the two-year note surged 16 basis points to 4.53% on Thursday before trading little changed in Asia trading Friday. The yield on similar-maturity Japanese bond fell 0.5 basis points on Thursday to -0.070%, while the 10-year yield rose two basis points to 0.455%.
The move also came on hints of optimism about a potential debt-ceiling deal and economic data suggesting resilience. US officials have failed to resolve their debt-cap impasse even after Fitch Ratings warned that the nation’s AAA rating was under threat from the standoff.
“The move to 140 is really a dollar story, not a yen story,” said Bipan Rai, a currency strategist at Canadian Imperial Bank of Commerce.
--With assistance from Michael G. Wilson, Ruth Carson, Matthew Burgess and Masaki Kondo.
(Adds strategist comment in the sixth paragraph.)
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