The Japanese yen came under strong pressure during Thursday’s trading, after falling to a record low against the euro and remaining close to its weakest level in nine months against the U.S. dollar. This decline followed remarks by Japan’s new prime minister, who emphasized her government’s intention to slow the pace of interest-rate hikes as much as possible giving markets the impression that ultra loose monetary policy will persist longer than expected.
Markets view the 155 level as a sensitive threshold that previously prompted direct intervention from Tokyo, while traders await clearer signals from Sanae Takaichi’s government. Bank of Japan Governor Ueda delivered dovish comments, stressing that the bank aims for moderate inflation supported by wage growth. The finance minister also noted that inflation remains below the 2% target, making a rate hike unlikely at this stage.
The government’s statements coincided with a new warning from the finance minister regarding the rapid decline of the yen a sign of growing concern within Tokyo that worsening weakness could trigger renewed inflationary pressure, particularly in food and energy prices. Despite government worries, the Japanese currency continues to hover near levels the market approaches with extreme caution, amid rising expectations that the Bank of Japan may be forced to raise rates next month. Currently, investors see a 22% probability of a December rate hike, increasing to 43% for a similar move in January.
On the other hand, the Australian dollar posted notably strong performance, rising to a two week high supported by robust labor-market data showing a larger than expected drop in unemployment. This improvement reduced pressure on the Reserve Bank of Australia to implement another rate cut, with market expectations for a possible December cut falling to around 6%.
With the end of the longest government shutdown in U.S. history, currency markets are bracing for the return of several economic reports that were delayed due to the shutdown. However, the White House clarified that October employment and inflation data may not be released at all, leaving traders facing heightened uncertainty that could fuel market volatility in the days ahead.
Overall, global currency movements are characterized by a high degree of caution at the moment. The yen continues to face persistent pressure due to Japan’s loose monetary policy, while the Australian dollar benefits from labor-market strength. In the background, markets await the return of U.S. economic data to establish clearer direction as concerns grow about widening divergence in monetary-policy expectations among major economies.
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