Yen Stabilizes at 156.64 After BOJ Hike Fails to Boost Currency
The yen holds at 156.64 per dollar following a 2% drop. The BOJ raised rates to 1.25%, but market expectations remain high for further intervention.
Key points
- The yen traded at 156.64 per US dollar after dropping 2% last week.
- The Bank of Japan raised rates to 1.25%, the highest in 31 years.
- Traders see a 55% chance of a Fed rate hike in October.
The yen stabilized at 156.64 per US dollar after a two percent weekly decline. Japanese markets remained closed for a three-day holiday, which reduced liquidity significantly. This quiet period kept traders alert for potential official intervention to support the currency.
The Bank of Japan raised interest rates to 1.25 percent on Friday. This marks the highest level in thirty-one years for the central bank. However, the move failed to strengthen the yen because two dissenting votes disappointed investors.
BOJ hike fails to support yen
Investors expected a stronger hawkish signal from the central bank. The lack of explicit guidance led to a sharp decline in the yen. The Nikkei newspaper later reported that Japanese officials conducted rate checks with banks.
Rate checks are viewed by traders as a precursor to direct currency intervention. Fred Neumann of HSBC noted that the BOJ faces a difficult messaging challenge. The Federal Reserve’s unanimous decision to raise rates complicates the BOJ’s efforts.
The yen reached its strongest level in seven months in early September. Traders then wagered on a faster pace of rate hikes. Recent gains have since been surrendered as investors test the central bank's resolve.
Global central banks tighten policy
The Federal Reserve and the European Central Bank also raised rates this month. Both institutions warned that further tightening might be necessary to tackle inflation. The prolonged war in the Middle East is a key driver of these decisions.
Traders currently price in a fifty-five percent chance of a Fed hike in October. This probability rose from forty-two percent a week earlier, according to CME FedWatch data. Thomas Simons of Jefferies believes midterm elections will not limit the Fed's actions.
Euro and dollar remain stable
The euro stayed little changed at 1.1482 US dollars. This stability followed voting projections showing the AfD party took first place in Germany. The result is seen as a blow to Chancellor Friedrich Merz’s conservative party.
ING economists linked the political fragmentation to years of economic stagnation. They warned that this political instability makes escaping stagnation harder. The dollar index remained steady at 100.23 after gaining over one percent last week.
