Yen on defensive, dollar firms as traders dial back Fed rate cut bets

SINGAPORE: The yen slid to its weakest level in more than nine months in early Asian trading on Tuesday as the dollar benefited from receding expectations that the Federal Reserve would cut interest rates at its policy meeting next month.

The US dollar edged as much as 0.1% higher against the yen to 155.29, the Japanese currency’s weakest level since February 4 this year, ahead of the release of delayed U.S. payrolls data, opens new tab for September due on Thursday.

The recent moves in the yen prompted Japanese Finance Minister Satsuki Katayama to express concern at a regular news conference on Tuesday.

“As we have recently been seeing one-sided, rapid moves in the foreign exchange market, we have been alarmed,” she said, in remarks reflecting broader worries about the negative economic implications of a weak yen.

Japanese Prime Minister Sanae Takaichi is due to meet Bank of Japan Governor Kazuo Ueda later on Tuesday. A proponent of expansionary fiscal and monetary policy, Takaichi has filled seats in key government panels with advocates of big spending backed by low interest rates - policies that work to depreciate the yen’s value.

Fed funds futures are pricing an implied 43% probability of a 25-basis-point cut at the U.S. central bank’s next meeting on December 10, down from a 62% chance a week ago and expectations that a cut was a near-certainty a month ago, according to the CME Group’s FedWatch tool.

The dollar index , a measure of the U.S. currency against major rivals, was last up 0.2% at 99.545, snapping a four-day losing streak to reclaim a one-week high.

“The theory is, if there is a hold in December, it’s only a temporary halt,” analysts from ING wrote in a research report. “Hard data releases ahead will have the final say, including some tolerance for weak employment data given the supply-side shocks.”

Fed officials speaking on Monday highlighted risks to the U.S. labour market.

U.S. firms have begun talking more frequently about layoffs as they plan for weaker demand and possible productivity gains from artificial intelligence, Federal Reserve Governor Christopher Waller said in remarks that continued to build the case for further rate cuts amid a broad policy dispute at the US central bank.

The U.S. labor market is in a “sluggish” state with firms hesitant to hire amid broad shifts in economic policy and interest in how artificial intelligence might be a substitute for new hiring, Fed Vice Chair Philip Jefferson said on Monday.

Investor confidence took a hit overnight, pulling down all three major U.S. stock indexes.

The yield on the U.S. two-year Treasury bond was last down 0.2 basis point at 3.6039%, while the yield on the 10-year note was last up 0.6 basis point at 4.1366%.

Dollar firmer as traders await US data

The euro was trading flat at $1.1594 , around the weakest level of the week after its losing streak extended into a third day.

Sterling was at $1.3149 , also edging 0.1% lower for a third consecutive day.

The Australian dollar fetched $0.6493 , 0.1% weaker, while the kiwi was unchanged at $0.56535 .