In the early morning Tokyo foreign exchange market on the 29th, the yen lacked clear direction. As of 8:30 a.m., the dollar-yen was at 157.75-76 yen per dollar, 3 sen stronger for the yen (weaker for the dollar) compared with 5:00 p.m. the previous day. With the Bank of Japan’s monetary policy meeting outcome due the following day on the 30th, yen buying and dollar selling for position adjustment emerged, while expectations of additional US rate hikes capped the yen’s upside.
In the previous day’s overseas session on the 28th, dollar buying led the way against a backdrop of rising US long-term yields and WTI crude oil futures, with the dollar-yen briefly climbing to 158.35 yen. However, technical resistance levels—the upper limit of the Ichimoku cloud at 158.44 yen and the 200-day moving average at 158.54 yen—capped the upside. After the Federal Open Market Committee (FOMC) decided to hold the policy rate steady, the pair was pushed back to around 157.77 yen.
The Federal Reserve (FRB) decided at the FOMC through the 28th to keep the federal funds (FF) rate target at 3.75-4.00%. It was the second consecutive meeting of holding rates steady. The statement retained the language that “inflation remains elevated,” maintaining a vigilant stance on price increases.
FRB Chair Warsh said at a post-meeting press conference that “inflation is still too high,” while indicating his view that financial conditions “cannot be described as restrictive,” leaving the door open to additional rate hikes. Market expectations for a rate hike at the next FOMC meeting on December 8-9 are strengthening, and according to CME Group’s “FedWatch,” the probability of a December rate hike was approaching 80% as of the early morning of the 29th. The prevailing view is that the FF rate target will be raised to 4.00-4.25%.
Meanwhile, in Japan, the Bank of Japan will hold its monetary policy meeting on the 29th and 30th. The market consensus is that the policy rate will be held at 1.25%, but the focus is on the BOJ’s stance toward future rate hikes. If the BOJ indicates a judgment that the underlying inflation rate has reached the 2% “price stability target,” the inflation outlook for next fiscal year could be revised upward in the “Outlook for Economic Activity and Prices” (Outlook Report) to be released on the 30th, potentially heightening expectations for a rate hike at the December meeting.
The September core consumer price index (core CPI), excluding fresh food, that the BOJ released earlier rose 3.2% year-on-year, exceeding the 2% target for the 24th consecutive month and marking the fastest pace since October 2023. Governor Kazuo Ueda has indicated he cannot tolerate underlying inflation rising above 2%, and attention is focused on how many hints of an additional rate hike he will provide at the press conference on the afternoon of the 30th.
Current foreign exchange rate levels are as follows:
| Currency Pair | As of 8:30 a.m. | vs. 5:00 p.m. Previous Day |
|---|---|---|
| Dollar-yen | 157.75-76 yen | 3 sen yen stronger, dollar weaker |
| Euro-yen | 176.00-03 yen | 51 sen yen weaker, euro stronger |
| Euro-dollar | 1.1156-57 dollars | 0.0034 dollar euro stronger, dollar weaker |
Note: Comparisons are with 5:00 p.m. the previous day.
The yen fell against the euro. The euro-area currency’s buying against the dollar spilled over, pushing the euro-yen up into the lower 176 range.
Market participants are strongly inclined to gauge both the pace of the BOJ’s policy normalization and the FRB’s rate-hike path. Even if the BOJ decides to hold steady, yen buying could accelerate if the Outlook Report or the governor’s press conference is perceived as hawkish. Conversely, if expectations for a December US rate hike strengthen further, the dollar would likely remain firm, with a scenario of testing the technical resistance zone in the 158 range also conceivable. Crude oil prices and US long-term yield movements will also continue to be factors driving market fluctuations.
finance.biggo.com