Japanese yen rises as the US dollar stays weak ahead of Friday’s US labor data announcement.
Following statements from Japan’s ministers on Friday, the Japanese yen (JPY) retraced its recent advances. According to newly appointed Economy Minister Ryosei Akazawa, both Prime Minister Shigeru Ishiba and the Bank of Japan (BoJ) believe that combating deflation is Japan’s top priority.
Japan’s Economy Minister, Akazawa, stressed that the timing of any monetary policy changes is critical.
Economy Minister Akazawa stated, “No change in the understanding of the government Bank of Japan (BoJ) agreement targeting 2% inflation.” The timing of monetary policy changes is critical and must be consistent with Japan’s overall goal of exiting deflation.
Yoshimasa Hayashi, Japan’s Chief Cabinet Secretary, revealed on Friday that Prime Minister Ishiba has ordered the preparation of a comprehensive economic plan. Hayashi also stated that he intends to offer a supplementary budget to Parliament after the lower house elections.
However, the Japanese yen (USDJPY) pair’s fall could be restricted as the Japanese Yen struggles due to the Bank of Japan’s decreasing chance of further rate hikes. According to Reuters, newly elected Prime Minister Ishiba said on Wednesday, “I do not believe that we are in an environment that would require us to raise interest rates further.”
Daily Digest Market Movers: Japanese Yen received downward pressure from the dovish tone surrounding the BoJ.
Japanese yen (JPY) retraced its recent advances. The US Dollar (USD) strengthened following better-than-expected US ISM Services PMI and ADP Employment Change figures, which called into question dovish Fed monetary policy forecasts.
According to the CME FedWatch Tool, markets expect the Federal Reserve will decrease interest rates by 25 basis points in November, with the likelihood of a 50-basis-point cut falling from 35.2% the day before.
Austan Goolsbee, President of the Federal Reserve Bank of Chicago, maintained on Thursday that interest rates must fall “significantly” in the coming year. Goolsbee also claimed that he wants to keep the unemployment rate at 4.2% and prevent it from climbing further.
US ISM Services The PMI increased to 54.9 in September from 51.5 in August, beating the market forecast of 51.7. Meanwhile, the Services Price Paid Index, a key inflation indicator, increased to 59.4 from 57.3.
Futures indicated a less than 50% chance of the Bank of Japan raising interest rates by 10 basis points by the end of 2024. Furthermore, rates are expected to rise to only 0.5% by the end of next year, up from the current 0.25%, according to Reuters.
Asahi Noguchi, a BoJ board member, emphasized that the central bank “must patiently maintain loose monetary conditions.” Noguchi stated that the BoJ will likely make moderate adjustments to the level of monetary assistance while carefully examining whether inflation can sustainably attain the 2% objective, aided by wage growth.
Traders are waiting for Friday’s US employment data, which includes Nonfarm Payrolls (NFP) and Average Hourly Earnings, for more direction.
The ADP US The Employment Change data shows that 143,000 jobs added in September, exceeding the projected 120,000 positions. Additionally, annual compensation increased by 4.7% year on year. The total number of jobs created in August revised up from 99,000 to 103,000.
On Tuesday, the Bank of Japan’s Summary of Opinions from the September Monetary Policy Meeting indicated that there are no immediate plans for future rate hikes. The central bank wants to continue its accommodative approach while being open to modifications if economic circumstances improve significantly.
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