The Japanese yen deepened losses in the Asian market, falling against a basket of major and minor currencies, hitting a two-month low. The decline came after the yen posted a fourth consecutive day of decline against the US dollar.
reflecting renewed concerns about interest rate differentials between Japan and the United States.
The reasons behind this decline are due to less aggressive comments by Japan’s monetary authorities.
which have reduced expectations of Japanese interest rate hikes this year. At the same time, developments in the US point to a receding prospect of a rate cut.
with expectations that the US Federal Reserve may cut interest rates by 50 basis points in November following strong data on the US labor market.
The Japanese yen exchange rate today fluctuated clearly, with the dollar rising 0.3% against the yen to 149.12 yen, its highest level since August 16. The day started at 148.71 yen and hit a low of 147.53 yen.
The data points to increased pressure on the Japanese yen, reflecting concern about growing interest rate differentials between the world’s two largest economies.0> On Friday, the Japanese yen fell about 1.2% against the US dollar, marking its third consecutive daily loss.
The decline was attributed to strong data from the US labor market.
which increased investor optimism about the strength of the US economy and the Fed’s ability to deal with inflation by raising interest rates. Last week, the Japanese yen lost 4.6% against the dollar.
making it its second weekly loss in the last three weeks.
This loss is the largest since February 2009, as signs are growing that Japan’s interest rate hikes are again far away.
negatively impacting the value of the Japanese currency.
Future Interest Rate Forecasts
Hopes of a Japanese rate hike have eased significantly after statements by Bank of Japan officials.
indicating that the likelihood of an increase in interest rates at the next monetary policy meeting on October 31 is reduced. With weak expectations of a possible third hike in December, markets are starting to reassess the Japanese yen.
Economic figures from the U.S. were strong, with the U.S. economy adding about 254,000 new jobs.in September in the non-farm sectors, beating expectations of adding 147,000 jobs. The figures for August were also revised to show the addition of 159,000 jobs instead of 142,000, indicating continued strength in the U.S. labor market.
Interest rate spreads between Japan and the US indicate their current stability at 475 points, the smallest spread since February 2023. These spreads are expected to remain constant until the Fed meeting scheduled. Investors had high hopes of reducing these spreads to 450 points if the Bank of Japan raises interest rates for the third time this year. However, this possibility has become remote, especially After Shigeru became prime minister of Japan, increasing pressure on the yen.
In light of these developments, it seems that interest rate differentials between Japan and the US will depend more on the Federal Reserve’s steps in implementing the monetary easing cycle. As strong economic data from the US continues to emerge.
the Fed’s moves are likely to be less aggressive, supporting the US dollar against the yen.
The swing of interest rates between the two countries has a significant impact on currencies.
and the continued weakening of the Japanese yen could have repercussions on the Japanese economy as a whole.
including export and investment.
The impact of the unemployment rate on interest rates
The U.S. unemployment rate fell to 4.1% in September, down from 4.2% in August, reflecting an improvement in the labor market that exceeded analysts’ expectations.
who had expected the rate to stabilize at 4.2%.
This decline indicates the strength of the US economy and its ability to create jobs under the current economic conditions. The data also showed that average hourly earnings rose 0.4% in September, better than expectations of a 0.3% increase.
Moreover, the previous reading for August, which was up 0.4%, was revised to a 0.5% rise, indicating additional improvements in wages. The data comes after a period of economic shifts in the US.
where concerns about inflation and pressure on interest rates have increased.
Following the release of this data, pricing for US interest rate cuts fell by about 50 basis points at the November meeting from 33% to 3%. In contrast, the odds of a rate cut increased by about 25 points from 67% to 97%.
This change in outlook reflects market optimism about the ability of U.S. economy is achieving sustainable growth.
which may reduce the need to lower interest rates to support economic activity. Positive data also reflects the impact of monetary policy on economic conditions.
Thanks to the policies pursued by the Federal Reserve.
the labor market has been able to maintain momentum, which is a positive signal for investment and growth.
Under these circumstances, investors should monitor economic developments and possible changes in monetary policies.
as these factors can significantly affect the performance of financial markets .
Based on these figures, it appears that the US economy may be in a position to face future challenges.