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Japanese Yen Surges as Bank of Japan Hints at End to Negative Rates, US Dollar Slides

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Japanese Yen Surges as Bank of Japan Hints at End of Negative Rates

The Japanese Yen experienced a significant surge on Monday following comments made by Bank of Japan (BOJ) Governor Kazuo Ueda, suggesting that Japan may soon move away from its negative interest rate policy. Meanwhile, the US Dollar (USD) slid ahead of this week’s key US inflation reading.

The USD stumbled in anticipation of US inflation data set to be released on Wednesday. Traders are keen to determine whether the world’s largest economy is on track for a “soft landing” and if the Federal Reserve will continue to raise rates.

The Japanese Yen strengthened by 1.2% to 146.06 per dollar after Ueda’s weekend comments. The governor indicated that the central bank could end its negative interest rate policy once it achieves its 2% inflation target. In an interview with the Yomiuri newspaper, Ueda mentioned that the BOJ may have enough data by the end of the year to decide on ending negative rates.

The yen has faced pressure against the dollar due to growing interest rate differences between Japan and the United States. The Federal Reserve has embarked on an aggressive rate-hike cycle while the BOJ has remained dovish.

Takehiko Masuzawa, trading head at Phillip Securities Japan, believes Ueda’s comments were intended to curb the yen’s decline against the dollar, stating that “his comments are working almost the same as government intervention.”

Since the yen weakened past 145 per dollar last month, traders have been on high alert for signs of intervention from Japan to bolster the currency. A year ago, this level prompted the authorities to conduct the first yen-buying intervention since 1998.

The dollar index, which measures the US currency against other currencies including the yen, dropped by 0.26% to 104.59, nearing a one-week low. Last week, it concluded eight consecutive weeks of gains.

Against the dollar, the British pound rose by 0.4% to $1.2518, distancing itself from the three-month low it hit last week. The euro also experienced gains, rising by 0.3% to $1.0731 after concluding Friday with an eight-week losing streak.

The greenback, together with US Treasury yields, witnessed a surge last week due to a series of resilient economic data, leading to expectations of further rate hikes by the Federal Reserve.

The performance of the dollar this week will depend on its reaction to domestic factors, according to ING strategist Francesco Pesole.

Amidst the weaker US dollar, the Australian and New Zealand dollars were among the major beneficiaries, with each rising by around 1%. These currencies also benefited from the strength of the Chinese yuan.

The Australian and New Zealand dollars are often used as liquid proxies for the yuan.

China’s onshore yuan recovered from Friday’s 16-year low after the central bank set the daily midpoint guidance with the strongest bias on record, indicating growing unease with the currency’s recent weakness. The onshore yuan rose by nearly 0.8% to 7.2895 per dollar, while its offshore counterpart increased by approximately 0.9% to 7.3003 per dollar.

Data from the weekend revealed that China’s consumer prices returned to positive territory in August, while factory-gate price declines slowed. These figures suggest a reduction in deflationary pressures alongside signs of economic stabilization.

Matt Simpson, senior market analyst at City Index, expressed surprise at the positive inflation figures, stating that historically, China does not experience negative inflation for extended periods.

Separate data released on Monday showed that Chinese banks extended 1.36 trillion yuan ($186.18 billion) in new yuan loans in August. This figure surpassed analyst expectations and marked a significant increase from July.

More detail via ARY NEWS here… ( Image via ARY NEWS )

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