(Bloomberg) -- The yen slid below the key psychological mark of 150 per dollar after robust US consumer spending and labor data led traders to dial back bets on interest-rate cuts from the Federal Reserve into next year, boosting the greenback against major peers.
The currency dropped as much as 0.3% to trade at 150.08 per dollar, a level last seen on Aug. 1. The latest decline follows two straight weeks of drops for the yen as investors re-calibrated a slower narrowing of the yield gap between Japan and the US. After the release of the US retail sales and jobless claims data Thursday, swaps for the Fed’s January meeting now suggest some 61 basis points of rate cuts, or slightly more than two quarter-point reductions across the next three US central bank meetings.
“The yen is under pressure amidst a broad dollar bid on the strength of the US consumer,” said Skylar Montgomery Koning, a foreign-exchange strategist at Barclays Plc. “The yen is an underperformer within the complex because of the feed through of strong US data to less dovish pricing for the Fed and higher US yields.”
The outlook for the Japanese currency has changed, with new Prime Minister Shigeru Ishiba suggesting earlier this month that the nation isn’t ready for higher rates, though he pulled back later to say he’s seeking to align with the Bank of Japan. Additional reports out of the US pointing to a resilient economy, pushing markets to price in a slower pace of monetary easing by the Fed, have also weighed on the yen.
The yen’s fall in October has again highlighted the risk of currency intervention by Japanese officials. Japan’s finance minister, Katsunobu Kato, recently said that sudden moves in the yen hurt companies and households, and that impact requires government scrutiny. The country’s chief currency official Atsushi Mimura also said that he was monitoring the foreign exchange market with a sense of urgency.
Investors now have the yen-centered carry trade top of mind, with some strategists seeing the currency depreciating even further beyond 150. Even so, hedge funds are the most bullish on the yen since early 2021, according to Commodity Futures Trading Commission data for the week to Oct. 8. The yen’s weakness also comes on the back of rising stock prices both at home and abroad. Japanese stocks are rallying ahead of Japan’s general election on Oct. 27.
“If US data keeps coming in strong, then the yen can touch 153 this month, before the election and FOMC,” said Takafumi Onodera, who’s in charge of sales and trading at Mitsubishi UFJ Trust & Banking Corp. in New York.
The prospect of the election of Donald Trump as president in the US is another key risk for the Japanese currency, said Yusuke Miyairi, a currency strategist at Nomura.
Setting aside the Fed’s policy path and US data, “a Trump victory could trigger a knee jerk reaction higher for USD/JPY, owing to the market likely acknowledging his victory as more inflationary,” Miyairi said.
--With assistance from Umesh Desai.
(Updates market prices and adds more context throughout.)
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