By Kevin Buckland
TOKYO (Reuters) – The yen climbed to an eight-week top versus the U.S. dollar on Thursday after a Bank of Japan policy board member advocated continued interest-rate hikes.
The dollar hovered near the lowest level since the start of last week against a basket of peers that includes the yen, with investors beginning to entertain prospects that a global trade war could be averted.
Sterling retreated from a one-month high with the Bank of England widely expected to cut rates by a quarter point later in the day.
Australia’s dollar weakened after data showed the nation’s trade balance deteriorated sharply.
The yen strengthened as far as 151.81 per dollar – the strongest level since December 12 – in the Tokyo morning, after the BOJ’s Naoki Tamura said the central bank must raise rates to at least 1% or so in the latter half of fiscal 2025 with upward risks to prices rising.
Japan’s currency was changing hands at 152.45 per dollar as of 0616 GMT, up 0.1% on the previous day, after paring some of its early gains after Tamura clarified that he didn’t mean that the neutral rate should be 1%.
“Tamura is known to be on the hawkish side,” although his comments initially “fired up yen longs”, said Shoki Omori, chief global desk strategist at Mizuho Securities.
At the same time, “the main factor for the yen going richer is geopolitics”, Omori added.
“I think there’s more to come from POTUS that makes markets nervous,” he said, referring to U.S. President Donald Trump.
The market currently sees around 98% odds for a quarter-point BOJ rate hike by September.
Meanwhile, a quarter-point Fed cut is fully priced for July, with markets expecting a total of 45.3 basis points of reductions by the December meeting, according to LSEG data.
The next major test for the U.S. monetary policy outlook is monthly payrolls figures due Friday.
The dollar index – which measures the U.S. currency against the yen, euro, sterling and three other major peers – stood at 107.74, not far from its overnight low of 107.29.
The index had jumped to a three-week high of 109.88 at the start of the week as Trump looked poised to impose 25% import tariffs on Mexico and Canada, but the countries won last-minute, one-month reprieves – although Washington did slap 10% tariffs on China.
The offshore yuan was steady at 7.2865 per dollar, supported by the strongest official fixing for three months by the People’s Bank of China.
Canada’s loonie slipped 0.3% to C$1.4345 versus its U.S. counterpart after rising to the highest since December 17 at C$1.4270 overnight. The Mexican peso was little changed at 20.59 per dollar.
“It appears that the market has started to put the tariff threats against Mexico and Canada in the rear view mirror and is treating the China tariffs as business as usual,” said James Kniveton, a senior corporate FX dealer at Convera.
“Two (U.S.) rate cuts are still anticipated by the end of the year, but with the diminishing likelihood of tariffs contributing to inflation, there appears to be greater flexibility for the Federal Reserve.”
The euro edged down 0.1% to $1.0388.
Sterling eased 0.2% to $1.2483, after rising as high as $1.2550 in the previous session for the first time since January 7.
Market-implied odds for an imminent BoE rate reduction stand at around 92%.
Australia’s dollar weakened 0.2% to $0.6270.
(Reporting by Kevin Buckland; Editing by Jacqueline Wong and Shri Navaratnam)
