The yen notched its best day against the dollar in two months overnight, after Bank of Japan Governor Kazuo Ueda said policymakers might have enough economic information by year’s end to determine that short-term rates will need to rise.
The yuan had its best day in six months after authorities vowed to correct one-way moves and Reuters reported the central bank had stepped up scrutiny of dollar buying.
Both, however, remain near their weakest levels of the year and with the yuan at 7.3022 per dollar in offshore trade and the yen last a little off Monday highs at 146.68 per dollar.
Japanese government bonds remained under pressure on Tuesday, with 10-year JGB yields up 1 basis point to a fresh high of 0.71%.
“The result of Ueda’s comments was an intense move higher in Japanese swaps and government bond yields,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne.
“(It) is certainly constructive for yen longs. (But) I refrain from getting too excited at this stage…where the actions are more of a medium-term issue – we won’t get the outcome of the spring wage negotiations until April 2024.” MSCI’s broadest index of Asia-Pacific shares outside Japan was flat. Japan’s Nikkei rose 0.3%, with markets looking to U.S. inflation data and this week’s European Central Bank meeting to set interest rate expectations and the mood.
Due on Wednesday, markets are expecting the U.S. figures to show annualised core inflation falling to 4.3% in August though the headline number is seen ticking up to 3.6%.
“A lower-than-expected print may slow the U.S. dollar’s rise while higher print could potentially un-nerve risk sentiments as it would reinforce market expectations for further rate hikes, and this could fuel dollar strength,” said OCBC strategist Christopher Wong.
Interest-rate futures markets are pricing about a 45% chance of another U.S. rate hike by year’s end.
Investors’ appetite for risk is also to be tested this week when British chip designer Arm Holdings lists in New York with a goal of raising almost $5 billion.
Overnight, the weaker dollar and upgrade on Tesla from analysts at Morgan Stanley helped U.S. stock markets gain. Tesla rose 10%. The S&P 500 rose 0.7%.
In early Asia trade, U.S. futures slipped 0.2%.
Elsewhere in currency trade, the Australian dollar was weighed by a further slip in consumer sentiment, which has been below the neutral 100 mark since March 2022 – the longest streak since a recession in the early 1990s.
The Aussie, which bounced on Monday with gains in the yuan, was last down 0.1% at $0.6424. The New Zealand dollar also dipped 0.1% to $0.5911.
The euro gained on the dollar overnight but moves have been muted with investors dialling back long euro positions ahead of Thursday’s ECB meeting. Pricing implies about a 56% chance that policymakers leave rates on hold.
“There is a sense that ECB is already done for the cycle,” said Maybank analysts in a note to clients.
“Recent PMI prints suggest that growth outlook could be deteriorating and puts the euro at risk of further downside. This is all the more amplified by lingering expectations for the Fed to hike further.”
Benchmark 10-year Treasury yields were steady at 4.2980%.
In commodity markets, Brent crude futures were steady at $90.59 a barrel. Gold hung on at $1,921 an ounce, while bitcoin was out of favour and dropped below $25,000 for the first time in three months.
