The Japanese yen traded around 149.3 per dollar on Monday, holding steady at 12-week highs as domestic markets were closed for a public holiday.
Japanese yen remains unmoved against US dollar
The yen had rallied sharply last week, driven by stronger-than-expected inflation data in Japan, which helped solidify expectations for further interest rate hikes by the Bank of Japan (BOJ). The inflation figures raised optimism that Japan's economy could be entering a more sustainable phase of growth, prompting speculation that the BOJ may begin to tighten its ultra-loose monetary policy sooner than previously anticipated.
BOJ to adjust policy
BOJ officials also signaled their intention to adjust policy if economic conditions continue to evolve as expected. However, BOJ Governor Kazuo Ueda tempered the outlook by reiterating that the central bank is ready to act swiftly if market conditions change unexpectedly, including through market operations to manage volatility. Ueda's comments came at a time when Japan’s 10-year government bond yield surged to its highest level in over 15 years, signaling growing confidence in the Japanese economy but also raising concerns about rising borrowing costs for the government.
US Dollar weakened broadly
Externally, the dollar weakened broadly, contributing to the yen's strength. Growing concerns about the US economy, including signs of slowing growth and persistent inflationary pressures, weighed on the dollar. The Federal Reserve's cautious stance and uncertain economic outlook in the US have prompted traders to reassess their positions in the greenback, fueling a shift toward other safe-haven currencies like the yen. As a result, the yen’s recent appreciation reflects both domestic factors, including the potential for tighter monetary policy in Japan, and external pressures stemming from broader concerns about the US economy.
What to expect
Looking ahead, the yen could continue to benefit from any further signs of inflationary momentum in Japan, while the dollar's outlook will remain tied to economic data from the US and potential shifts in Federal Reserve policy. The balance of these factors will be key in determining the direction of the yen in the near future.
