© Reuters. FILE PHOTO: Japanese yen and US dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration
By Iain Withers
LONDON (Reuters) – The yen slipped against the dollar on Friday after a Reuters report that the Bank of Japan (BoJ) was leaning towards keeping its key rate control policy unchanged next week, ahead of a crunch run of central bank meetings that include the United States and Europe.
BoJ policymakers prefer to examine more data to ensure wages and inflation continue to rise before changing policy, five sources familiar with the matter said. The report added that there is no consensus within the central bank and the decision could still be a close call.
The dollar was headed for its biggest one-day gain against the yen since April, rising as much as 1.3% to a near two-week high of 141.95. It was last up 1.2% at 141.73. Before the report, the dollar was up about 0.3% against the yen.
The yen traded broadly subdued earlier in the session after data showed Japan’s core inflation rose to 3.3%, matching a median market forecast but remaining ahead of the BoJ’s 2% target.
Kenneth Broux, head of corporate research for FX and rates at Societe Generale (OTC: ), said the sharp move in the yen on Friday could prompt Japan’s finance ministry to make further public comments to try to support the currency.
“It puts more pressure on the Finance Ministry again,” Broux said, adding that the report echoed comments made by BoJ Governor Kazuo Ueda this week.
Japanese authorities will consider all options to deal with excessive volatility in the currency market, the country’s top currency diplomat, Masato Kanda, was quoted as saying later Friday by a local news agency.
With inflation above the BoJ’s target for more than a year, markets have been on fire with speculation that the central bank could touch control of the yield curve as early as the July 27-28 meeting.
The yield on Japan’s 10-year government bond fell 4.5 bps to 0.41% on Friday, the lowest level since July 6, just before speculation about a sharp policy adjustment this month began to rise and its biggest one-day drop since late April.
DOLLAR INDEX Earlier in the day, the yield pushed up to 0.48%, just 2 bps away from the BoJ’s policy ceiling, and on top of last Friday’s four-month peak at 0.485%
Central bank meetings from Europe and the US are also due next week, with investors analyzing data to better gauge the likely path of monetary policy.
The – which tracks the greenback against six major peers including the yen – was last up 0.3% at 101.040.
The index was on track for a 1.1% weekly gain, its biggest gain in two months.
Data on Thursday showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, touching the lowest level in two months amid a lingering labor market.
Money markets estimate a 96% chance of a 25 basis point hike from the Federal Reserve next week.
“We could see the last rate hike in this cycle, but any dovish pivot seems far off,” Christian Scherrmann, US economist at DWS, said.
The euro was broadly flat against the dollar at $1.11285, down 0.6% on Thursday.
The European Central Bank is expected to raise interest rates by 25 basis points on July 27, according to all economists in a Reuters poll, a slight majority of whom now also expected another hike in September.
The pound fell for a sixth day against the dollar – its longest stretch of daily losses since last September – and was last down 0.2% at $1.28470, despite rebounding earlier in the session on data showing UK consumer spending was stronger than expected in June.
The pound is on track for around a 1.9% weekly drop, its biggest since early February this year.