Yen Set for Worst Month Since May as Rate-Divergence View Holds

  • Traders see a 73% chance of a Fed rate hike by December
  • Most economists expect BOJ to keep policy unchanged next week

Bloom: BOJ Policy Not Working, Renminbi Is Boring

The yen is set for its biggest monthly loss since May amid speculation the Bank of Japan will maintain monetary stimulus as the Federal Reserve prepares to raise interest rates for the first time since December.

Japan’s currency has weakened against eight of its 10 major peers since Sept. 30 as Governor Haruhiko Kuroda and his colleagues prepare to set policy on Nov. 1. Economists anticipate U.S. gross domestic product data on Friday will show an improvement, paving the way for a rate hike. The market-based chance of a December increase by the Federal Reserve rose to 73 percent, from 68 percent at the end of last week.

“The market is driven by monetary-policy divergence,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “The move in the dollar-yen is probably influenced more by dollar strength than yen weakness, on the back of increased rate-hike speculation by the Fed.”

The yen was little changed at 105.27 per dollar as of 6:36 a.m. in New York, after touching the weakest level since July 29. It has fallen 3.9 percent this month.

Polls suggesting Donald Trump is falling behind in the upcoming U.S. election also hurt the yen, which is regarded as a haven from market upsets, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.

The Federal Open Market Committee will meet on Nov. 1-2, before the Nov. 8 U.S. election, and then again on Dec. 13-14.

A strong majority of economists surveyed by Bloomberg expect the BOJ to keep its easing program unchanged when it meets next week. In September, it shifted from expanding the monetary base to controlling interest rates.

‘Shrinking Impact’

“Given the shrinking impact from Japan’s central bank, markets don’t have to be concerned about BOJ risks, and that’s making it easier for the yen to fall,” said Yujiro Goto, a senior FX strategist at Nomura International Plc in London. Low Japanese bond yields and stability in oil prices are pressuring the yen, Goto said.

The Bloomberg Dollar Spot Index, which measures the U.S. currency against a basket of 10 major peers, has risen 0.4 percent this week and 2.5 percent this month.

The U.S. growth data will need to be strong for the dollar to keep rising, Citigroup Inc. analysts including Singapore-based Todd Elmer said in a note. GDP grew an annualized 2.6 percent in the third quarter, from 1.4 percent from April to June, according to economists surveyed by Bloomberg.

“The bar for a positive surprise on today’s GDP reading looks to be increasingly high given dollar-buying and forecasts for a major jump,” the analysts said. “This calls into question scope for the dollar to extend its overnight rally.”

— With assistance by Netty Idayu Ismail, and Mika Otsuka

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