Yen gains on chance of imminent BOJ pivot; dollar broadly lower

SINGAPORE: The yen scaled a one-month high against the dollar on Thursday, as growing speculation that the Bank of Japan (BOJ) could end negative interest rates as soon as this month and bets of imminent U.S. rate cuts dragged on the U.S. currency.

The Japanese currency rallied more than 0.5% to a high of 148.56 per dollar, and likewise made gains against the euro and the Aussie.

The euro was last 0.52% lower at 161.98 yen, while the Australian dollar fell 0.44% to 97.64 yen.

BOJ board member Junko Nakagawa said on Thursday Japan’s economy was moving steadily towards sustainably achieving the central bank’s 2% inflation target, just a day after Jiji news agency reported that at least one of the central bank’s nine board members is likely to say that removing negative interest rates would be reasonable at this month’s policy meeting.

“The potential for (a) March pivot is growing,” said Hirofumi Suzuki, chief FX strategist at SMBC.

“Nakagawa’s comments do not negate this view. As a result, the yen is appreciating, continuing the trend from yesterday. The yen looks strong in the near term.”

Dollar slips vs euro as data weighs

The yen has remained under pressure for the most part of the past two years owing to stark interest rate differentials, as major central banks aggressively hiked interest rates to tame inflation, while the BOJ remained a lone outlier with its ultra-easy monetary policy stance.

A move from the BOJ away from negative interest rates would come at a time where bets for rate cuts elsewhere – particularly from the Federal Reserve - continue to build, which would give some much needed support to the battered Japanese currency.

In the broader market, the U.S. dollar was on the back foot, as traders zeroed in on the idea that U.S. interest rates were likely to fall this year even after some upside surprises on inflation.

Fed Chair Jerome Powell said on Wednesday rate cuts will “likely be appropriate” later this year “if the economy evolves broadly as expected” and once officials gain more confidence in inflation’s steady deceleration.

Those remarks, coupled with data released the same day that pointed to an easing of labour market conditions, sent U.S. Treasury yields skidding, which in turn pushed the greenback broadly lower.

The euro and sterling held near one-month highs struck in the previous session and last bought $1.0898 and $1.27305 respectively.

“Dollar weakness against the major currencies came down to both the weak labour market data … and also Powell’s testimony,” said currency strategist Carol Kong at Commonwealth Bank of Australia.

“Powell didn’t really give away too much … (but) judging by the market reaction, Powell’s comments were less hawkish than some had expected. Markets were likely relieved that Powell didn’t change his risk assessment on inflation even after the January CPI figures.”

Futures pricing currently point to a 70% chance that the Fed could begin easing rates by its June policy meeting, according to the CME FedWatch tool, with roughly 87 basis points of cuts priced in for the year.

All of that left the greenback pinned near a one-month low against a basket of currencies. The dollar index edged 0.05% lower to 103.30.

Elsewhere, the Canadian dollar was little changed at 1.3517 per U.S. dollar after the Bank of Canada (BoC) on Wednesday kept its key overnight interest rate steady but said underlying inflation meant it was too early to consider a cut.

“We now think the BoC is more likely to delay any decision to cut rates until June 5,” said Simon Harvey, head of FX analysis at MonFX. “We maintain our short-CAD bias, but note the period of significant depreciation is likely to be delayed until the mid-Q2.”

The New Zealand dollar added 0.07% to $0.6134, while the Australian dollar also edged 0.07% higher to $0.6569.

Data on Thursday showed Australia’s surplus on trade goods widened in January as a rise in exports of farm products and gold outweighed growth in vehicle imports.

Over in the cryptoverse, bitcoin retreated from a record high struck earlier in the week, though its 0.2% loss on the day paled in comparison to its 55% rally for the year thus far.

The world’s largest crypticurrency was last at $66,351, while ether slipped 0.8% to $3,819.50 after peaking at an over two-year high in the previous session.