Key Takeaways

  • Japanese inflation data fuels bets the BoJ will abandon ultra-loose monetary policy
  • US dollar continues to slip on speculation the Fed will lower interest rates in 2024

Yen’s Strength

The Japanese yen strengthened sharply Wednesday morning, trading as low as ¥146.7 against the dollar before getting comfortable at the ¥147 mark. The dip represents the lowest point the dollar has traded against the yen since early September. 

In the same vein, Tokyo released Japanese inflation figures last week. Japan saw its core inflation rate rise to 2.9% in October, a touch higher than September’s 2.8%. Headline inflation, which includes food costs, called in at 3.3%, up .3% from the previous month. Altogether, the stubborn inflation rate has held steadily above the Bank of Japan’s 2% target for 19 consecutive months. 

The data is inciting whispers among economists, who predict the central bank will raise interest rates in 2024, abandoning their current negative rate of -0.1%. Earlier this year, Japan took steps to relax its grip on its yield curve control (YCC). The tweak introduced some flexibility on the 1% cap on the 10-year bond yield, making it more of a reference point than a hard limit, further leading some to believe the central bank will raise its benchmark interest rate in the near future and cast aside its ultra-dovish monetary policy.

Having said that,  BoJ governor Kazuo Ueda struck a serious tone yesterday with a fresh dose of pessimism, claiming it is “premature” to consider an exit from the ultra-loose monetary policy. Market participants are eagerly awaiting the outcome of the next BoJ two-day meeting, slated for Dec. 18 – Dec. 19. 

Back stateside, the dollar slumped to a 3-month low. The buck’s index brushed off 102.49, the lowest it has seen since August. In contrast to the expectations surrounding the BoJ’s monetary policy, investors seem convinced that the Federal Reserve is done raising rates and may even start easing its policy in early 2024. 

By the Book

Traders are patiently awaiting the results of the Fed’s Beige Book reading. The report, nicknamed after the color of its cover, provides a qualitative summary of the economic landscape over the 12 US banking districts. Information is gathered by interviews with key business owners and economists for each area. Typically, the first line of the report is what investors look to as the overall summary of the Fed’s current economic outlook. 

After all that excitement, we’ve still got a bit left to look forward to. US PCE and Core PCE reports are set for print on Thursday. The Personal Consumption Expenditures data, mixed with the Beige Book release, will give investors a decent feel of the state of the economy. From there, bets will be made on whether the data is good enough to nudge the Fed toward finally scaling back on its tight monetary policy stance. 

With all this in mind, traders should keep close tabs on the upcoming economic reports to stay ahead of any market-moving news. In a rapidly changing and dynamic market, staying vigilant and ahead of the trend is crucial to making well-informed decisions.