Yen Faces Steep Monthly Drop as BOJ Disappoints and Fed Stays Firm
The Japanese yen was on track for a major monthly loss against the U.S. dollar on Friday after the Bank of Japan (BOJ) disappointed traders expecting a more hawkish stance on future interest rate hikes. Meanwhile, the Federal Reserve tempered hopes for a December rate cut, keeping the dollar supported.
Yen Recovers Slightly After Government Comments
The yen regained some ground after Finance Minister Satsuki Katayama said that Japan’s government is closely monitoring foreign exchange movements with a “high sense of urgency” amid the yen’s persistent weakness.
Data released Friday showed core inflation in Tokyo accelerated in October, remaining above the BOJ’s 2% target — signaling ongoing price pressures in Japan’s capital.
BOJ’s Dovish Tone Limits Yen Gains
The BOJ kept its benchmark rate unchanged at 0.5% on Thursday, while Governor Kazuo Ueda struck a more cautious tone than markets expected. His remarks disappointed traders who were looking for signs of a faster monetary policy normalization.
According to Noel Dixon, global macro strategist at State Street Global Markets, the BOJ will “ultimately have to normalize policy at least to 1%.” He noted that rising wages and increased fiscal spending under Japan’s newly elected leader Sanae Takaichi could further drive inflationary trends in the long term.
Dollar Strengthens as Fed Signals Caution
The yen last traded up 0.09% at 153.96 per dollar, but it remains on track for its worst monthly performance since July, with the dollar gaining 4.1% over the same period.
The U.S. dollar index rose 0.28% to 99.75, heading for a 2% monthly increase, also its strongest since July. The greenback was supported by improving U.S. economic sentiment despite signs of a softening labor market.
Federal Reserve Chair Jerome Powell said Wednesday that divisions within the Fed and a lack of recent government data may limit the scope for another rate cut this year. The Fed cut rates as expected this week, though two officials dissented — with Governor Stephen Miran favoring a deeper cut and Kansas City Fed President Jeffrey Schmid preferring no change at all.
Schmid later warned that persistent inflation and spreading price pressures could undermine confidence in the Fed’s commitment to its 2% inflation target.
Market data from the CME Group’s FedWatch Tool now show traders pricing in a 63% chance of a December rate cut, down from 92% last week. Dixon expects the dollar index to consolidate around 102 before strengthening next year as economic growth improves.
Euro and Pound Slide as Dollar Gains Momentum
The euro slipped 0.27% to $1.1534 after the European Central Bank (ECB) kept rates unchanged at 2% for the third consecutive meeting, repeating that monetary policy is currently in a “good place.” The euro has lost 1.7% this month amid broad dollar strength.
The British pound fell 0.28% to $1.3113, its lowest level since April, as political pressures grew around Finance Minister Rachel Reeves. Against the euro, sterling hit its weakest point since May 2023.
The pound is down 2.5% this month, while gilt yields have dropped on concerns about the potential impact of Reeves’ upcoming November budget on households and businesses.
Traders are increasingly pricing in the possibility of a Bank of England rate cut, though most expect the central bank to hold steady at its next meeting.
Bitcoin Rises as Crypto Market Holds Steady
In cryptocurrencies, Bitcoin gained 2.37% to $110,080, extending modest weekly gains as traders turned their attention to global macroeconomic trends and shifting central bank policies.
