Key facts
- The yen traded at 157.33 per US dollar.
- Japanese officials reportedly checked dollar/yen rates on Friday, a precursor to intervention.
- The Bank of Japan raised interest rates on Friday, but with dovish dissents.
- The euro was quoted at $1.1467.
- The Reserve Bank of Australia is expected to hike rates next week.
The yen weakened against a firm dollar on Tuesday as traders wagered that Japan's central bank would struggle to keep pace with a hawkish turn by global central banks, leaving the country's interest rates at a wide gap with major peers. Moves were contained thanks to a holiday in Japan and the risk of intervention, after the Nikkei newspaper reported Japan checked dollar/yen rates on Friday, a move often seen as a precursor to market intervention.
The yen traded at 157.33 per US dollar early Tuesday, after drifting lower on Monday. The Bank of Japan raised its interest rate on Friday, but the move was accompanied by two dovish dissents, contrasting with the Federal Reserve and most other global central banks that are sounding hawkish and have markets pricing in further increases.
"Unless the BOJ tightens policy more rapidly than the Federal Reserve, the approximately 275-basis-point US-Japan rate differential should continue to support yen-funded carry trades," said Carlos Casanova, senior Asia economist at Union Bancaire Privée. He expects dollar/yen to rise to 160 by year-end.
Markets are pricing about a 30% chance that the BOJ hikes its benchmark short-term rate to 1.5% in October and a roughly 55% chance that the Fed will lift its funds rate window by 25 basis points to 4% to 4.25%. Reserve Bank of Australia Governor Michele Bullock is likely to strike a hawkish tone at a fireside chat scheduled later on Tuesday, with markets pricing a 90% chance of a rate hike next week.
Other currency pairs were mostly steady, with the euro at $1.1467 and sterling trading around $1.3372. The Australian dollar hovered at $0.7120, while the New Zealand dollar was pinned near multi-month lows at $0.5708.