Yen Rebounds As Cooling US CPI Weighs On Dollar, Treasury Yields

(MENAFN- Live Mint) " The yen jumped more than 1% against the dollar as traders ramped up bets that the federal Reserve will ease monetary policy this year on signs US inflation pressures were easing. Japan's currency climbed as much as 1.1% to hit 154.70 per dollar in New York trading Wednesday - forestalling the need for Japanese authorities to step into the market to support the yen. The currency has whipsawed in recent weeks, weakening beyond 160 per dollar for the first time since 1990 in late April before sharp rebounds after two rounds of suspected intervention by authorities. Read more: US Inflation Ebbs for First Time in Six Months in Relief for Fed Traders boosted their bets that the Federal Reserve will cut interest rates after the April US CPI report, with swaps pricing now suggesting more than an 85% chance of a quarter-point rate reduction by the September Fed meeting. Meanwhile, wagers that the Bank of Japan will raise its rate have been growing. The prospect of the world's largest economy shifting gears and lowering interest rates was enough to send the yen higher as US Treasury yields tumbled and a Bloomberg gauge of the greenback fell to its weakest level in more than a month. The wide moat between Japan's ultra-low and higher US borrowing rates has kept the pressure on the Japanese currency, which touched a 34-year low recently.
The dollar-yen pair“is by far the most sensitive USD-cross to moves in the US fixed-income markets and could move the most if the US rates investors do bring forward Fed rate cuts,” said Valentin Marinov, head of G-10 foreign-exchange research and strategy at Credit Agricole. Read more: Treasuries Soar as Traders See Easing Inflation Aiding Fed Cuts Wednesday's data revealed that the so-called core measure of US inflation - which excludes volatile food and energy costs - rose 0.3% from March, while year-over-year core price growth eased to 3.6%. Over the past year, the yen has slumped about 12%, making it the worst performing Group-of-10 currency. Sentiment was so poor that bearish wagers dominated the market even after the Bank of Japan raised the short-term policy rate for the first time since 2007 in March.
To stem losses, Japan is suspected to have bought the yen twice, in late April and then again in early May, spending about ¥9 trillion in total, according to Bloomberg calculations. The nation's top currency official, Masato Kanda, has declined to comment on whether authorities had intervened.“CPI definitely has BOJ breathing a sigh of relief,” said Helen Given, a foreign-exchange trader at Monex. Still, she added,“until the Fed starts cutting, USD/JPY has a ceiling of strength at the 150 level - the interest-rate gap is still quite large.” Despite Japan's recent efforts, market watchers argue the yen continues to face long-term pressures. Former US Treasury Secretary Lawrence Summers said that currency interventions are ineffective at shifting exchange rates, even at the large magnitude that Japan is thought to have deployed. With assistance from Masaki Kondo, Yumi Teso and Brett Miller. This article was generated from an automated news agency feed without modifications to text.

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