Yen rises on Ueda comments; dollar braces for crucial December

SINGAPORE: The yen rose on Monday, helped by comments from Bank of Japan Governor Kazuo Ueda who left the door open to a near-term rate hike, while the dollar began the month on the back foot as investors ramped up bets of a U.S. rate cut this month.

Ueda on Monday gave a more upbeat outlook of Japan’s economy and said the central bank will consider the “pros and cons” of raising interest rates at its next policy meeting in December, in what market participants considered a hawkish tone by the governor.

That helped the Japanese currency extend gains, climbing 0.4% to a session high of 155.49 per dollar.

“It seems to be game-prep ahead of a potential rate hike, making a hike at the December or January meeting highly plausible,” said OCBC currency strategist Christopher Wong.

“But the question is if this is one hike and another long wait. A yen recovery would likely need the BOJ to follow through with stronger guidance.”

Traders have been pricing in a greater chance of a BOJ rate hike this month, with the yen’s recent slide - it fell 1.4% in November - adding to the case for raising rates.

Finance Minister Satsuki Katayama said on Sunday that recent erratic swings in the foreign exchange market and rapid yen weakening are “clearly not driven by fundamentals”.

In the broader market, the dollar eased as investors braced for a pivotal month that could bring the Fed’s final rate cut of the year and the confirmation of a dovish successor to Chair Jerome Powell.

The euro was up 0.04% at $1.1605, while sterling last bought $1.3239, after having clocked its best week in over three months on Friday in a relief rally following British Finance Minister Rachel Reeves’ budget reveal.

Against a basket of currencies, the greenback was down 0.05% to 99.39, having lost 0.7% last week.

Traders are now pricing in an 87% chance the Fed will cut by 25 basis points when it meets next week, according to the CME FedWatch tool.

The sharp repricing of Fed easing expectations and a report that White House economic adviser Kevin Hassett has emerged as the frontrunner to be the next Fed chair have dragged on the dollar, which on Friday clocked its worst week in four months.

U.S. Treasury Secretary Scott Bessent said there was a good chance President Donald Trump would announce his pick before Christmas.

“With December FOMC now closer to fully pricing a 25bp cut, we think the market will increasingly focus on the pricing of subsequent meetings,” economists at Goldman Sachs said in a note.

“Division on the committee is restraining more dovish pricing, but with a large amount of labor market data due before the January meeting we think too little is priced in Q1.”

November’s U.S. employment report will be released on December 16, after the Fed’s policy meeting this month, and will include October nonfarm payrolls.

There will be no unemployment rate for October as the longest shutdown in history prevented the collection of the household survey data.

The foreign exchange market was back in full swing on Monday, having recovered from an hours-long outage at the world’s largest exchange operator CME Group last week which upended trading across stocks, bonds, commodities and currencies.

The Australian dollar rose 0.08% to $0.6553, while the New Zealand dollar was little changed at $0.5738.

Bitcoin slid 4% to $87,543.06, while ether fell 5.5% to $2,855.93.