The yen increased dramatically in price after a shift signal from the Bank of Japan

At the end of the session in the New York market, the USD decreased by more than 2.6% against the yen, to 143,465 yen for 1 USD. During the session, at one point green silver lost up to 3.8% in value compared to the Japanese currency, bringing the yen exchange rate to the highest level in the past 3 months. The 10-year Japanese government bond yield also increased, reaching 0.75%.

Speaking on December 7, BOJ Governor Kazuo Ueda said the agency had a number of options on interest rate targets once it brought short-term lending rates out of the negative state that had been maintained for a long time. The market sees this as a potential sign that the BOJ may be about to shift away from its ultra-loose monetary policy, and this creates momentum for the yen to rebound strongly.

Once it moves to tighten monetary policy, the BOJ will go in the opposite direction with other central banks: the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England ( BOE) are expected to start cutting interest rates in 2024. Such a divergence will benefit the yen’s exchange rate.

During recent years, the BOJ has also been “going against the flow” of the world in terms of monetary policy, when the agency maintained an ultra-loose monetary policy to stimulate economic growth and inflation, while central banks Other major constraints are strongly tightened to fight inflation. That contrast has put strong devaluation pressure on the yen, making it the major currency that has lost the most value this year, at one point falling to its lowest level in 3 decades compared to the USD.

“The BOJ’s recent statements are fueling bets that the central bank will eventually return interest rates to positive status,” said Copay strategist Karl Schammotta.

Recently, when the yen exchange rate dropped to sensitive levels, the market continuously speculated that the Japanese Ministry of Finance would intervene to revive the domestic currency exchange rate. However, it seems that Japanese authorities have not intervened in the currency market this year, after the first intervention in many years last year.

“The market has shorted the yen very, very much and the consensus is that 2024 will be the year that Japan ends its negative interest rate policy. Therefore, the market is ready to move when any signal indicating that appears,” TraderX strategist Michael Brown commented to Reuters news agency.

During Friday’s trading session, exchange rate movements between major currencies will likely be dominated by the November jobs report from the US Department of Labor. The next two weeks will see the final monetary policy meetings of 2023 of a series of major central banks, including the Fed this Wednesday, the ECB this Thursday, and the BOJ next Tuesday. .

The Fed is expected to keep interest rates unchanged at this meeting. Futures markets are also betting on a 60% chance that the Fed will start cutting interest rates in March 2024, from 50% a week ago – according to data from CME’s FedWatch Tool.

Meanwhile, according to Bloomberg news agency, the financial market during Thursday’s session at one point bet on a 45% possibility of the BOJ ending its negative interest rate policy right at this December meeting. Two days ago, this possibility was only 3.5%.

“The recovery of the bond market in November created conditions for the BOJ to adjust monetary policy before Christmas. But the BOJ has made clear that any changes will be moderate and gradual,” Saxo Bank strategist Althea Spinozzi told Bloomberg.

A survey of economists conducted by Bloomberg forecasts that the BOJ will end negative interest rates before the end of April 2024. In particular, more than half of the surveyed economists forecast that interest rate increases will take place in April. In the October survey, only 29% predicted that the BOJ would raise interest rates in April.

“The best scenario is that negative interest rates end in April. However, there is also a slight possibility that the BOJ will raise interest rates in January or March, because they want to act as soon as possible in the context of the financial market. There are many uncertainties in the political and political environment,” chief economist Yasunari Ueno of Mizuho Securities commented to Bloomberg.

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