TOKYO :The buoyant dollar slipped a notch on Friday at the end of a holiday-thinned trading week, while the yen hovered near a five-month low as traders chewed over contrasting messaging from a hawkish U.S. Federal Reserve and a cautious Bank of Japan.
Traders are betting U.S. rates will remain elevated for longer, sending Treasury yields higher in recent weeks and in turn boosting the dollar against other major currencies.
The U.S. dollar index, which measures the greenback against six currencies including the yen, euro and sterling, was down 0.12 per cent on the day at 107.95. It has been in a holding pattern around 108 all week, and was still hovering close to the two-year high of 108.54 it hit last Friday.
Fed Chair Jerome Powell said earlier this month that U.S. central bank officials would be “cautious” about further cuts following an as-expected quarter-point rate reduction.
For the month, the dollar index is up 2 per cent, bringing year-to-date gains to 6.4 per cent.
In contrast, the BOJ has taken a cautious approach to raising borrowing costs amid uncertainty over U.S. president-elect Donald Trump’s economic plans. This has dragged on the yen, which hit its weakest level since July 17 on Thursday at 158.09 per dollar.
The Japanese currency got little respite from a fresh warning from the country’s finance minister who said that the government “has been alarmed by foreign exchange developments … and will take appropriate action against excessive moves”.
The yen strengthened 0.1 per cent to 157.75 per dollar by 1305 GMT, but still hovered close to Thursday’s low.
Japanese officials have intervened in the currency market to prop up the yen this year but it remains on course for a fourth successive annual decline.
A summary of opinions from the BOJ’s December policy meeting released on Friday showed some officials becoming more confident about a near-term rate increase, while others remained wary amid uncertainties over the trend for wages and Trump’s policies.
BOJ Governor Kazuo Ueda said last week, after the central bank held rates, that it would take “considerable time” to fully gauge the outlook for wages and overseas economies, particularly the United States.
Trump’s mooted looser regulation, tax cuts, tariff hikes and tighter immigration policies are seen as both pro-growth and inflationary by economists.
The dollar is on track for a 5.3 per cent gain against the yen this month and a 11.8 per cent advance for the year.
“Several market participants signal however that the upward trend in dollar/yen may be exaggerated, which increases the risk of a correction,” said Sydbank analysts in a note.
“At the same time, Japanese authorities have indicated possible intervention in the event of rapid and sharp rises in dollar/yen.”
DECEMBER RETREAT
Other major currencies attempted to claw back some ground against the dollar.
The euro edged up 0.14 per cent to $1.0439, but was still heading for a 1.3 per cent decline for December. Sterling was up 0.28 per cent at $1.2563 and on track for a 1.4 per cent fall for the month.
The Chinese yuan was set to round out the week near a 13-month low, at 7.2994 per dollar in the onshore market. The currency has suffered under the threat of additional U.S. tariffs on Chinese goods under Trump.
South Korea’s won was down 0.4 per cent at 1,472.5 per dollar after parliament impeached acting President Han Duck-soo, plunging the country deeper into political chaos. The won dropped to its lowest level in about 16 years ahead of the vote.
Leading cryptocurrency bitcoin rose 1 per cent to $96,630, but was largely flat on the month after retreating from a record high of 108,379.28 hit on Dec. 17. It has surged about 127 per cent so far this year.
