The Japanese yen weakened in Asian markets on Tuesday against a basket of major and minor currencies, extending its losses for the second consecutive day against the US dollar and nearing its lowest level in a week, driven by US pressures related to the rise of the world's largest currency and the increase in long-term Treasury bond yields, ahead of the start of the Federal Reserve meeting.
Markets are currently pricing in a 92% probability that the Federal Reserve will raise US interest rates by about 25 basis points to counter rising inflationary pressures in the United States.
In contrast, the Bank of Japan is widely expected to raise Japanese interest rates by about 25 basis points on Thursday and Friday, for the second time this year, as markets await further signals on how far the bank will continue on the path of monetary policy normalization in the coming period.
Price overview
Today's Japanese yen exchange rate: The dollar rose against the yen by 0.35% to 154.89 yen, from today's opening price of 154.34 yen, and recorded a low of 154.21 yen.
The yen ended Monday's trading down about 0.6% against the dollar, hitting a one-week low of 155.00 yen, due to a fresh jump in U.S. Treasury yields.
US dollar
The dollar index rose 0.15% on Tuesday, maintaining its gains for the second consecutive session and approaching its highest level in two weeks, reflecting the continued rise of the US currency against a basket of global currencies.
The yield on 10-year US Treasury bonds rose 0.6% today, extending its gains for the seventh consecutive session and hitting a 19-year high above the 5% mark, providing further support for the US dollar exchange rate.
This development in the US bond market comes as global oil prices rise to near their highest levels in four months, putting further inflationary pressure on monetary policymakers at the Federal Reserve.
The Federal Reserve meetings begin later today, with monetary policy decisions expected tomorrow, Wednesday, amid markets pricing in a 92% probability of a 25 basis point interest rate hike, the first rate increase since July 2023.
Bank of Japan
The Bank of Japan meets on Thursday and Friday of this week, amid market expectations of a 100% probability of a 25 basis point increase in Japanese interest rates to a range of 1.25%, in the second interest rate hike this year.
According to a Reuters report, four sources familiar with the Bank of Japan's direction said the bank is preparing to raise interest rates this week, most likely by 25 basis points, and may hint at accelerating the pace of monetary tightening in the future if price pressures increase the risk of inflation exceeding the target.
Sources indicated that the Bank of Japan likely does not have a preconceived notion of the final interest rate, as this depends on how previous interest rate hikes have affected the economy and the extent to which companies have passed on the burden of higher input costs to households.
Japanese interest rate
The pricing in the probability of the Bank of Japan raising interest rates by a quarter of a percentage point at this week's meeting is fully completed at 100%.
The probability of the Bank of Japan raising interest rates by a quarter of a percentage point at its October meeting has stabilized at 25%.
Predictions regarding the performance of the Japanese yen
Here at FX News Today, we expect the yen to continue moving in negative territory against the US dollar, and may record its lowest level in several weeks, especially with the continued escalation of geopolitical tensions in the Middle East and the rise in global oil prices.
