Yen Holds Near 160 Against Dollar After BOJ’s Ueda Hints at Hike
The yen remained near the 160 level versus the dollar following remarks by Bank of Japan Governor Kazuo Ueda that make an interest rate hike this month sound likely but not certain.
The Japanese currency fell to a session low of 160.05 in New York midday trading, after strengthening as much as 0.3% to a session high of 159.37 earlier Wednesday, based on prices aggregated by Bloomberg. During the Asian session, it was seen sliding to 160 on the EBS platform owned by CME Group Inc., according to traders.
Ueda said that the BOJ needs to keep raising interest rates in response to developments in the economy and inflation. While the remarks indicate that there’s a good chance of a rate hike on June 16, they weren’t as explicit as comments he made telegraphing the previous two increases.
“The BOJ appears to be on track for a June hike,” said Yusuke Miyairi , a currency strategist at Nomura International Plc. “Since the BOJ’s June hike is much priced in, Ueda’s speech won’t change the trend of the dollar-yen pair.”
Overnight index swaps show about an 86% chance of a rate hike this month.
Pressure on the yen has mounted as negotiations over a permanent US-Iran ceasefire show little sign of a breakthrough. The wide interest rate gap between the US and Japan is also weighing on the currency after the BOJ held rates steady in April. The Bloomberg Dollar Spot Index 0.3% on Wednesday, on course for the best one-day performance since May 19.
The depreciation beyond the psychological milestone of 160 comes despite Japan spending a ¥11.73 trillion ($73.35 billion) from April 28 to May 27 to support the currency. The level has also become significant for a large cluster of options contracts to buy or sell the yen.
One-week implied volatility on the dollar-yen pair climbed for a second day to 6.44% as of noon New York time on Wednesday, the highest since May 15 on a closing basis.
“We maintain a bearish yen view as the global central bank hiking cycle continues to weigh on the currency,” Ikue Saito , a strategist at JPMorgan Chase & Co., wrote in a client note after Ueda’s speech.
The yen strengthened earlier after Prime Minister Sanae Takaichi said that Japan’s government would take appropriate action on foreign exchange at any time if needed. The comment echoed from Finance Minister Satsuki Katayama.
A substantial amount of volume was traded in the morning at 160, said Hiroyuki Machida , director of Japan FX and commodities sales at Australia & New Zealand Banking Group.
Jumpei Tanaka , deputy general manager of the global FX trading team at Mizuho Bank Ltd., said the pair hit 160 between 8:30 and 9 a.m. local time.
Many traders are focused on whether more than $8 billion of options will expire in or out of the money through Thursday. Dollar-yen options with a 159.75 strike and $1.55 billion in notional value expire on Wednesday. On Thursday there is another $4.66 billion expiry at the 159.00 strike and $2.3 billion at the 160.00 strike.
