The Yen increased in the first trading session of the week, supported by a statement from Governor of the Bank of Japan (BOJ) Kazuo Ueda, who left open the possibility of a short-term interest rate hike. Meanwhile, the US dollar opened December in a weak position as investors stepped up betting that the US Federal Reserve (Fed) would cut interest rates this month.
Ueda said on Monday morning that the central bank will consider advantages and disadvantages of raising interest rates at the upcoming policy meeting in December, which is seen as the clearest signal for the possibility of a rate hike this month.
In a press conference later, he said he would explain more in detail about the interest rate management roadmap after the rate was raised to 0.75%, while emphasizing that the December decision would be based on salary data and other economic information.
This statement helped the Yen expand its upward momentum, increasing by about 0.5% to a session high of 155.395 Yen to 1 USD.
This appears to be a preparation for a rate hike, making the possibility of the BOJ raising interest rates at its December or January meeting very high, said Christopher Wong, currency strategist at OCBC, adding that the BOJ is likely to raise interest rates in December.
However, the question is whether this is just one increase and then a long wait. A sustained recovery of the Yen will require the BOJ to provide a clearer direction, Wong added.
Traders are now pricing in the possibility of the BOJ raising interest rates this month after the Yen fell to a 10-month low in November, increasing operational pressure on central banks.
Finance Minister Satsuki Katayama also said on Sunday that erratic fluctuations in the foreign exchange market and the Yen's rapid weakness "clearly do not reflect fundamental factors".
