ADVERTISEMENT

International

Yen Weakens as Ueda Indicates BOJ Isn’t in Hurry to Hike Rates

By Masaki Kondo
Japanese 10,000 yen and US 100 dollar banknotes arranged for a photograph in Tokyo, Japan, on Friday, May 10, 2024. The Bank of Japan offered to purchase a smaller amount of government bonds in a regular operation on May 13 than it did on April 24 as it seeks to reduce its presence in the country’s debt market. Photographer: Noriko Hayashi/Bloomberg (Noriko Hayashi/Bloomberg)

(Bloomberg) -- The yen fell after Governor Kazuo Ueda indicated the Bank of Japan isn’t in a hurry to increase interest rates again after hikes in March and July. 

The currency slid as much as 1.1% to 144.20 per dollar around 11:40 a.m. in London. The move gathered pace after Ueda wrapped up a briefing following the decision earlier Friday to leave borrowing costs unchanged. 

Ueda said the BOJ would continue to raise its benchmark interest rate if economic and inflation trends move in line with its outlook. But he also said that upside risks to inflation from the yen’s weakness were easing and that gives him room to mull policy. 

“The yen has weakened from relief that Governor Ueda did not really touch on a rate hike,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. in Tokyo. With his comments on the currency and inflation risks, “he hid his hawkishness.”

While some hedge funds unwound bullish yen exposure in the options market on Friday, others sought out bets on further weakness, with some looking for a move toward 148 to 150 per dollar by the end of the year. There has also been demand for so-called one-year digital options with a 160 strike, according to FX traders familiar with the transactions who asked not to be identified because they aren’t authorized to speak publicly.

The BOJ raised its assessment of consumer spending, a key engine of economic growth, and cited the need to monitor financial markets. 

Investors were seeking clues from Ueda on the the rates outlook. They have been sandwiched between relatively hawkish commentary from BOJ policy board members over the past month and market pricing that’s signaled doubt over further rate hikes this year.

The BOJ decision follows a half-a-percentage-point interest-rate cut from the Federal Reserve that was accompanied by outlook suggesting the pace of cuts may slow. That’s seen the yen whipsaw this week and has left it vulnerable to further volatility.

--With assistance from Vassilis Karamanis and Aline Oyamada.

(Updates with latest moves, options in first paragraph after the chart.)

©2024 Bloomberg L.P.