Yen Rallies on BOJ Rate Hike Bets as Dollar Weakens After Waller's Remarks
Market Movements and Central Bank Actions
By Karen Brettell
Yen Surges on BOJ Rate Hike Speculation
NEW YORK, Sept 3 (Reuters) - The yen jumped by more than 2% against the U.S. dollar on Thursday as traders ramped up bets on a Bank of Japan interest rate hike, while analysts pointed to BOJ data showing no official intervention behind the currency's strong gains on Wednesday.
The dollar, meanwhile, added to losses after Federal Reserve Governor Christopher Waller said that if upcoming data confirms that inflation pressures are cooling off, he is inclined to argue in favor of keeping interest rates steady at the U.S. central bank's next policy meeting.
Speculation of Official Intervention
A sharp, sudden rise in the yen against the dollar on Wednesday fueled speculation that Japanese officials had intervened to shore up the currency, after gains from a historic U.S.-Japan action in late July began to fade.
But with no evidence of official action, analysts say the move instead reflects bets that the BOJ could raise rates by more than previously expected when it meets on September 17 to 18.
Analyst Commentary and BOJ Data
“BoJ daily account data released today indicated there was no USD selling/yen buying by the MoF on Wednesday. Reports from market participants also indicate there were no 'rate checks' by the MoF yesterday,” said Jeremy Stretch, chief international strategist at CIBC Capital Markets.
During a rate check, a government or central bank asks financial institutions to quote an exchange rate but does not buy or sell.
Japan's top currency diplomat Atsushi Mimura said on Thursday that he remained on alert over currency market developments, warning that he was not yet comfortable with recent moves in the yen.
Yen strength on Thursday has also been gradual, unlike in previous periods of intervention, said analysts at Goldman Sachs.
And, "spillovers from the Yen move to Dollar weakness on other pairs have been more muted today versus those prior episodes," they said.
Hawkish BOJ Comments and Market Pricing
Hawkish comments from BOJ board member Hajime Takata were cited as a factor behind yen strength. Takata said on Wednesday the central bank should conduct interest rate hikes nimbly to counter intensifying inflationary pressures, rather than adhere to a fixed semiannual pace anticipated by markets.
Markets are now pricing in 75% odds of a 25-basis-point BOJ hike this month, with some traders speculating that an even larger increase is possible. An additional hike in October is also seen as a possibility, though not a likely one.
Market pricing “is too hawkish in our view. However, the continued market speculation over a faster pace of rate hikes means USD/JPY longs could still get squeezed in the coming days,” said Stretch.
The Japanese yen was last up 2.08% at 155.47 per dollar. It is approaching the 155.21 level that was the yen high after the July intervention. If it surpasses this level it will be the strongest since May 6.
The Japanese currency has struggled to find fundamental support, coming under pressure from still-wide interest rate differentials, fiscal worries and a renewed spike in energy prices.
Dollar Weakness and U.S. Economic Data
Impact of Waller's Remarks
WAITING ON PAYROLLS
The dollar added to losses as traders pared bets on a September rate hike after comments from Waller.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.69% to 98.91, with the euro up 0.41% at $1.1634. Sterling strengthened 0.18% to $1.3508.
Traders are now pricing in 48% odds of a Fed rate hike this month, down from 59% before his comments. They had raised bets on a September hike after hawkish comments from Fed Chairman Kevin Warsh on Friday.
Upcoming U.S. Economic Releases
This week’s main U.S. economic release is U.S. jobs data on Friday, which is expected to show that employers added 56,000 jobs last month, according to the median estimate in a Reuters poll of economists. That would follow July's surprise drop of 23,000 jobs.
Consumer and producer price inflation reports for August are due next week. Data on Thursday showed that the number of Americans filing claims for unemployment benefits increased marginally last week, suggesting no material shift in labor market conditions at the end of August.
Other Currency Movements
Elsewhere, the Swiss franc strengthened after data showed a jump in inflation to 0.8% year-on-year, up from 0.4% in July, raising the possibility that the Swiss National Bank may raise interest rates away from zero.
Against the Swiss franc, the dollar weakened 0.74% to 0.807.
(Reporting by Karen Brettell, Rae Wee and Harry Robertson; Editing by Hugh Lawson and Deepa Babington)
