Investing.com – The Japanese yen rose to a one-month high on Thursday on growing confidence that the Bank of Japan is close to raising interest rates, while the dollar pared recent losses as Federal Reserve officials provided mixed signals on interest rates.
Asian currencies were muted overall, paring much of their initial gains as investors remained uncertain about the timing and extent of a potential Fed rate cut.
The yen hits a one-month high as the Bank of Japan raises its bets on rate hikes
The stock was the best performer in Asian trade, rising 0.6% to a one-month high of 148.52 against the dollar.
The yen strengthened thanks to a variety of factors creating a less dovish outlook for the Bank of Japan. Data showed growth exceeded expectations in January, and a major Japanese union also secured significant pay increases for some of its members, pointing to higher overall wages in the coming months.
Separately, BOJ board member Junko Nakagawa said the Japanese economy is well on track to meet the central bank’s 2% inflation target, a scenario that is expected to prompt rate hikes by the BOJ.
Wage growth and inflation are the two main factors the Bank of Japan looks at when raising interest rates. Strong signals on both fronts have meant markets are now pricing in the possibility that the Bank of Japan will begin raising rates once that happens – a scenario that bodes well for the yen.
Dollar stabilizes as markets put pressure on Powell, Kashkari comments
Both fell 0.1% in Asian trade but traded marginally above a one-month low in overnight trade. The dollar was also under pressure mainly due to the strengthening of the yen.
The US dollar fell in overnight trading after the bank said it would cut interest rates in 2024.
But Powell gave little information about the timing and size of the Fed’s planned cuts and repeated his warning that severe inflation would limit any monetary easing.
That warning was backed by the Fed, which said it had not seen the Fed cut rates more than twice or even once this year.
Kashkari’s comments prompted some pushback on early rate cuts and also helped the dollar stop falling.
Most other Asian currencies were muted following Kashkari’s comments. The outlier was the index, which grew by 0.3% in positive territory. The Australian dollar was also supported by strong trade data from major trading partner China.
China achieved better-than-expected growth in the first two months of 2024, signaling some recovery in the country’s robust trading business.
But on Thursday it changed little, although it strengthened further from the 7.2 level.
The fall was 0.1%, and the increase was 0.1%. The increase was 0.1%, continuing the overnight retreat from the psychologically important level of 83.