Dollar falls vs yen

NEW YORK: The dollar weakened against the Japanese yen on Monday following Bank of Japan Governor Kazuo Ueda’s strongest indication to date that a December interest rate increase could be under consideration, providing support to the embattled yen.

Meanwhile, mounting expectations for a December interest rate reduction by the Federal Reserve exerted downward pressure on the dollar across the board.

Ueda said on Monday the BOJ would consider the “pros and cons” of raising interest rates at its next policy meeting in December, offering the strongest hint so far that a hike may materialise this month.

He subsequently told a press conference that he would elaborate on the central bank’s future rate hike path once rates are raised to 0.75 percent, adding that December’s policy decision would take into account wage information and other data. That pushed the dollar down by nearly 1 percent to 154.665 yen, before the US currency pared losses to trade down 0.7 percent at 155.09 yen. “It does seem like the BOJ is indicating greater comfort with moving towards hikes,” Jayati Bharadwaj, head of FX strategy at TD Securities, said.

“We expect them to actually hike in December, so it does take us closer to our call and that’s actually helping the yen.”

Traders have priced in a growing chance of a December hike from the BOJ, with the yen’s slide to 10-month lows last month adding to the case for raising rates. The yen rallied against a range of currencies, leaving the euro down 0.4 percent, and the pound and Australian dollar both down 0.7 percent.

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.

Data on Monday showed US manufacturing contracted for the ninth straight month in November, with factories facing slumping orders and higher prices for inputs as the drag from import tariffs persisted. The euro rose to a more than two-week high of USD1.1652, while sterling pared earlier losses to trade up 0.1 percent at USD1.3254, having logged its best week in over three months in a relief rally after British Finance Minister Rachel Reeves’ budget revelations.

Traders are now pricing in an 88 percent chance the Fed will cut by 25 basis points when it convenes next week, according to the CME FedWatch tool. What is less clear-cut is what happens after December.

Money markets right now show very little chance of another cut much before the spring and some analysts believe December might even yield a “hawkish cut” - trader-speak for a cut accompanied by indications from policymakers that another near-term fall in borrowing costs may not be forthcoming.

Bitcoin fell below USD90,000 on Monday, as a selloff gathered pace following the steepest monthly decline since mid-2021, as renewed risk aversion drove investors out of stocks and digital assets. Bitcoin was last down 6 percent at USD85,690.