The yen advanced against all Group-of-10 currencies as traders mulled potentially hawkish comments from Bank of Japan Governor Kazuo Ueda on the negative interest rate policy.
Ueda told the Yomiuri newspaper it’s possible the BOJ will have enough information by year-end to judge if wages will continue to rise — a key factor in deciding whether or not to end its super-easy policy. Still, the central bank chief also said the BOJ is some distance away from achieving its price stability target and would continue its patient monetary easing.
Ueda Says BOJ May Know Enough About Wages by Year-End: Yomiuri
The currency strengthened as much as 0.8% to 146.67 per dollar in early Asia trading Monday. Japan’s benchmark bond yield rose 4 basis points to 0.69%.
“Ueda’s remarks in an interview sounded hawkish,” said Takeshi Ishida, currency strategist in Tokyo at Resona Bank Ltd. “We expect the end to negative interest rate policy in the first three months of 2024, and Ueda may have started to encourage the market to price in such a scenario.”
Still, with US 10-year Treasury yields above 4%, it will be difficult for the dollar-yen to test its downside with just speculation of a policy tweak, he cautioned.
The yawning interest-rate gap between Japan and the US has been a key factor in yen weakness, making the higher-yielding dollar naturally more appealing. The currency has slumped 11% this year and is close to a more than three decade low and levels at which officials last stepped in to prop it up.
Traders have been on tenterhooks this month as Japanese officials said they won’t rule out any measures to address excessive moves, the first steps toward intervention.
Japan Ramps Up Verbal Defense as Yen Sets Fresh 10-Month Low
The latest data showed growth in Japanese workers’ wages unexpectedly slowed in June, indicating the labor market may be losing some steam and clouding prospects for Ueda’s sustainable inflation goal. That data came amid growing calls for higher wages across all pockets of the workforce, and some increases are still in the pipeline.
Japan Wage Growth Slows, Backing BOJ Ultra-Easy Policy Case
“Wage growth remains weak and weakening,” wrote Commonwealth Bank of Australia’s Joseph Capurso and Kristina Clifton in a currency strategy note. “We expect dollar-yen’s upside momentum to resume later this week.”
--With assistance from Daisuke Sakai.
(Updates with bond pricing. A previous version of the story corrected the source of analyst comment in final quote.)
Author: Matthew Burgess, Michael G. Wilson and Yumi Teso
