Japanese yen rising as hawkish attitude about the Bank of Japan’s interest rate outlook persists.

The Japanese yen (JPY) retraced its losses versus the US dollar on increased anticipation of a large Federal Reserve (Fed) rate drop on Wednesday. Traders will focus on the Bank of Japan’s policy announcement on Friday, with predictions that rates would remain unchanged while leaving the door open for further rate hikes.

Japan’s trade deficit was ¥695.3 billion, which was lower than the predicted ¥1,380.0 billion.

Japan’s merchandise trade balance In August, the trade imbalance increased to ¥695.30 billion from ¥628.70 billion the previous month. However, it fell short of market estimates of ¥1,380.0 billion. Exports rose 5.6% year on year, marking the ninth consecutive month of growth, but fell short of the expected 10.0%. Imports increased by only 2.3%, the smallest rate in five months and substantially lower than the predicted 13.4% increase.

US dollar is under pressure from increased prospects of a 50 basis point decrease by the Fed on Wednesday.

The US dollar remains under pressure, with mounting predictions that the Federal Open Market Committee (FOMC) would announce a significant 50 basis point rate drop on Wednesday. The CME FedWatch Tool shows that markets are allocating a 33.0% probability to a 25-basis-point rate drop, while the possibility of a 50-basis-point decrease has risen to 67.0%, up from 62.0% the day before.

Daily Market Movers: The Japanese yen strengthens due to the dovish Fed policy outlook.

Shunichi Suzuki, the Japanese finance minister, stated on Tuesday that fast foreign exchange (FX) movements are undesirable. Suzuki highlighted that officials will closely monitor how foreign exchange movements affect the Japanese economy and people’s livelihoods. According to Reuters, the administration will continue to monitor and respond to the impact of a rising Japanese yen.
Rabobank analysts Jane Foley and Molly Schwartz reported on Monday that JPY net long positions had reached their highest level since October 2016. While there is little likelihood that the Bank of Japan would raise interest rates at its policy meeting on September 20, traders will be eagerly monitoring for any signs that October may potentially be a more Active meeting.
Commerzbank FX analyst Volkmar Baur predicted that the Bank of Japan would remain on the sidelines this week. Baur added that the Federal Reserve’s actions are likely to have a stronger influence on the USD/JPY pair, implying that the JPY has a good possibility of going below 140.00 per USD even without a rate hike from the BoJ.

Fitch Ratings’ most recent analysis on the Bank of Japan’s policy outlook, released on Friday.

Fitch Ratings’ most recent analysis on the Bank of Japan’s policy outlook, released on Friday, forecasts that rates might rise to 0.5% by the end of 2024, 0.75% in 2025, and 1.0% by the end of 2026.
The University of Michigan’s Consumer Sentiment Index increased to 69.0 in September, beating market estimates of 68.0 and setting a four-month high. This rise represents Following months of decreasing economic expectations, consumers’ outlooks on the US economy have gradually improved.
Naoki Tamura, a hawkish BoJ policymaker, said on Thursday that the central bank should hike interest rates to at least 1% as early as the second half of the next fiscal year. This statement reaffirms the BoJ’s commitment to continued monetary tightening.
The US Producer Price Index (PPI) increased by 0.2% month on month in August, beating the expected 0.1% increase and the prior 0.0%. Meanwhile, core PPI increased by 0.3% month on month, above the predicted 0.2% increase and the 0.2% fall in July.