Written by Ray Wee
SINGAPORE (Reuters) – The yen was front and center in currency markets on Friday ahead of a Bank of Japan (BOJ) policy decision that is certain to raise interest rates, while the dollar was heading for its worst week in two months.
The BOJ team concludes its two-day meeting later today, and the markets are fully priced in a 25-BASIS rally, with comments from BOJ officials recently also pointing to such a move.
Ahead of the decision, the yen was little changed at 156.11 per dollar, approaching a one-week low hit in the previous session.
The Japanese currency rose last week on rising expectations for a rate hike, but has since given back some of those gains as traders also await more clarity on the BOJ policy outlook.
“BOJ will likely pursue a price increase,” said Vincent Chung, co-portfolio manager of diversified income bond strategy at T. Rowe Price.
“We expect this initial rate increase in 2025 to be followed by a series of gradual increases, potentially bringing the policy rate to 1% by the end of the year. The policy rate could exceed 1%, as this is closer to the lower end of the BOJ neutral rate range.” “
Analysts said it would take a solid rally from the BOJ to prevent the yen from falling again after Friday's decision, as officials will likely need to increase rate hikes in the future.
The euro rose 0.07% to 162.66 yen in the early Asian session, while the pound rose 0.08% to 192.80 yen.
Beating expectations for higher borrowing costs on Friday, data showed Japan's core consumer prices rose 3.0% in December from a year earlier to mark the fastest annual pace in 16 months.
Dollar glitter
Elsewhere, the dollar headed for its worst weekly decline in two months, after widely expected tariff announcements from US President Donald Trump after his inauguration did not materialize, contrary to what he threatened during the campaign.
Greenback was set to lose 1.2% against a basket of currencies, a steep decline since November. It was last 0.06% lower at 108.08 on Friday.
Meanwhile, the euro rose 0.03% to $1.0419 and headed for a 1.4% weekly gain, which would result in its best performance since November.
Sterling bought another $1.2353 and was similarly up 1.5% for the week, snapping three straight weeks of losses.
Also adding to the headwinds for the dollar were comments from Trump calling for the Fed to cut interest rates, arguing that it understands monetary policy better than those accused of setting it.
“Trump's comments…are a reminder that we're going to have this constant source of volatility coming from off-the-cuff comments and, of course, it's on paper a little bit of a challenge to that independence,” said Rodrigo Catril, chief FX strategist at National Australia Bank (OTC:).
Trump's comments come just days before the Fed's first policy meeting of his administration, with very broad expectations officials will leave rates unchanged.
Elsewhere, the Australian dollar fell 0.05% to $0.6282, although it was on track for its best week since September with a 1.5% rise.
The New Zealand dollar rose 0.04% to $0.5674, but similarly headed for a weekly gain of 1.6%, the best in September.
