Market News

By Masaki Kondo

(Bloomberg) -- The yen extended losses against the dollar, the only major currency around the world to drop versus the greenback on Thursday.

Japan’s currency weakened as much as 1.2% against the dollar during Tokyo trading after the Federal Reserve signaled its pace of rate cuts may slow. It then briefly erased losses as European markets opened before resuming the decline, weakening 0.5% to 143.06 by 11.28 a.m. in London.

The moves underscore just how volatile trading has been in the Japanese currency in recent months. It slid to a 38-year low against the dollar in July and has surged about 13% since then. 

Moves by the Bank of Japan have helped drive the yen’s rebound, as it surprised markets with a second rate hike this year on July 31 and signaled it’s ready to raise further depending on the price and economic outlook. 

The Fed has also been a dominant factor for the Japanese currency. This was on display again with the yen whipsawing during US trading on Wednesday after the Fed cut its benchmark rate by half a percentage point and then cautioned that such a move shouldn’t be seen as a new pace of policy easing.

In Japan, the BOJ started its two-day meeting on Thursday, and economists in a Bloomberg survey were unanimous in their forecasts that there won’t be a policy change. The focus will be on the tone of comments from Governor Kazuo Ueda.

Japanese central bank officials have flagged that they may raise interest rates if price and economic data reach their targets, at a time when the Fed and other monetary authorities are moving to cut rates. Even so, the fact that US sovereign yields remain far higher than Japan’s is putting downward pressure on the yen against the dollar. 

Options show that conviction for yen bulls has taken a hit this month. One-week risk reversals, a barometer of market positioning and sentiment, are trading at the least bullish level versus the dollar in two months and at the lowest since March versus the euro.

Most major Asian currencies advanced against the dollar on Thursday, with the Indonesian rupiah strengthening 0.7% and the South Korean won gaining 0.4%. Stock indexes in Asia climbed.

“It is a positive for Asian markets in the sense that it reduces the probability of a recession in the US, Asia’s biggest customer,” said Olivier d’Assier, head of applied research for Asia Pacific at Axioma. “It will also bring relief to US dollar borrowers in Asia and for those central banks with currency pegs” to the greenback like Hong Kong, allowing them to cut interest rates too, he said.

--With assistance from Masahiro Hidaka and Winnie Hsu.

(Updates yen move, adds charts.)