Yen Weakens as Policy Divergence Resurfaces Before Jackson Hole

(Bloomberg) -- The yen fell for a second day against the dollar after Federal Reserve officials indicated they are considering raising interest rates this year, while Bank of Japan Governor Haruhiko Kuroda suggested he is open to increased easing.  

Japan’s currency weakened against most of its major peers after Fed Vice Chairman Stanley Fischer signaled in a speech on Sunday that a 2016 rate hike is still under consideration, before Fed Chair Janet Yellen speaks Friday in Jackson Hole, Wyoming. Kuroda said in an interview published Saturday in the Sankei newspaper that there is “sufficient chance” the BOJ will add to its unprecedented easing at next month’s policy meeting. New Zealand’s dollar was the biggest decliner versus the greenback among Group-of-10 peers.

“The dollar has some more room to gain ahead of the key event,” said Yousuke Hosokawa, head of FX sales team at Sumitomo Mitsui Trust Bank Ltd. “The dollar may rise slightly higher against the yen given that there is scope for U.S. Treasury yields to climb and the probability of the dollar falling below 100 yen is receding.”

The yen weakened 0.6 percent to 100.82 against the dollar as of 6:30 a.m. in London, after depreciating to as low as 100.91. The Japanese currency on Aug. 19 completed its biggest weekly rally this month after reaching a seven-week high of 99.54.

Jackson Hole

The Bloomberg Dollar Spot Index, which measures the greenback against 10 leading global currencies, rose 0.5 percent, after finishing a two-week slide on Friday. The kiwi sank 0.8 percent to 72.16 U.S. cents. New Zealand’s central bank said Governor Graeme Wheeler will speak on monetary policy challenges at a private event in Dunedin Tuesday. The Aussie fell 0.4 percent to 75.95 U.S. cents.

CurrencyLevelOne-Day % ChangeQuarter-to-Date % Change
Yen100.80-0.62.4
Won1128.00-0.82.3
Aussie0.76-0.51.9
Euro1.13-0.41.6
Kiwi0.72-0.81.2

Fischer said the U.S. economy is already close to meeting the central bank’s goals and that growth will gain steam. The probability of a rate increase by the end of the year rose to 51 percent on Aug. 19 from 42 percent a week earlier.

Kuroda told the Sankei newspaper that the BOJ won’t hesitate to act based on discussions on the results of a comprehensive review at its Sept. 20-21 board meeting, and “technically” there is room for deeper negative rates. The Nikkei 225 Stock Average climbed 0.3 percent.

One-month implied volatility in dollar-yen jumped to 14.6 percent, the highest since July 29, from 10.8 percent at the end of last week.

“The dollar may gain a bit further if Japanese stocks react positively to Kuroda,” said Kumiko Ishikawa, a Tokyo-based analyst at Gaitame.com Research Institute Ltd. “Some people may have bought the dollar on Fischer, but all eyes are on what the Fed Chair will say. The dollar may lead markets broadly but it’s difficult to see the yen fall beyond 101.”

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