The yen weakened against the US dollar and euro on Friday as traders awaited an expected Bank of Japan (BOJ) rate hike, with the central bank’s guidance on future tightening likely to determine the currency’s next move.
The yen fell 0.1% to 156.19 per US dollar after snapping a three-day losing streak on Thursday. It was also 0.2% weaker against the euro at 179.30 yen.
Markets are pricing in an 83% chance of a BOJ rate hike, with expectations for further quarterly increases, according to LSEG data.
The BOJ is widely expected to raise its policy rate by 25 basis points to 1.25%, its highest level in more than three decades.
“Given the degree of pricing, the rate decision itself may have limited impact on the yen,” said Chris Weston, head of research at Pepperstone Group in Melbourne.
“Instead, attention should fall on the forward swaps curve and the bank’s guidance around the pace and urgency of further tightening.”
“Governor Ueda’s press conference will therefore be key. The market will be looking for confirmation that further normalisation remains firmly on the table, while assessing whether the Bank sees any urgency to move again.”
The yen’s weakness came after Japanese inflation data released on Friday showed core consumer prices rose less than expected in August, potentially reducing some pressure for faster policy tightening.
Meanwhile, the US dollar index was flat at 100.21 after retreating from a 2-1/2-month high reached on Thursday.
Markets have also started pricing in a higher chance of another US Federal Reserve rate hike at its next meeting. Fed funds futures indicate a 53% probability of a 25-basis-point increase next month, up from 27.2% a week earlier, according to CME Group’s FedWatch tool.
Elsewhere, sterling was flat at US$1.3359, close to a 2-1/2-month low, after the Bank of England kept interest rates unchanged and unexpectedly paused sales of government bonds for six months.
The euro was little changed at US$1.1478, while the Australian dollar gained 0.1% to US$0.7117. The New Zealand dollar slipped 0.1% to US$0.5724.
Oil prices also remained under pressure, with Brent crude falling 1% to US$103.76 a barrel as traders reassessed supply risks following fresh strikes between Saudi Arabia and Yemen’s Iran-backed Houthis.
Bitcoin fell 0.1% to US$76,442.97 while ether declined 0.2% to US$2,447.39.
