SINGAPORE: The yen looked punch-drunk on Wednesday after a sudden spill overnight, pressured by wide interest rate differentials between Japan and the rest of the world even as its central bank is widely expected to tighten policy next week.
The dollar was broadly steady and moves in other currencies were muted ahead of a key Federal Reserve policy decision later in the day, where investors are wagering on a cut in what is likely to be one of the most fractious meetings in years.
The yen was little changed at 156.82 per dollar, after a 0.6% fall towards the 157 level in the previous session despite no obvious trigger.
Against the euro, the Japanese currency similarly sank to a record low overnight and remained pinned near that level on Wednesday. The Aussie held to Tuesday’s 0.8% gain against the yen .
“It just looks like a little bit of the whipping boy of the markets at the moment,” said Alex Hill, managing director at Electus Financial, adding that the recent rise in long-term U.S. yields and fiscal and growth concerns in Japan have weighed on the currency.
“We’re looking at maybe yen weakness into the new year. And I think that kiwi/yen, Aussie/yen, all of the Antipodean crosses especially look well positioned to go higher.”
The Bank of Japan (BOJ) meets next week and is expected to raise interest rates, though focus will also be on what Governor Kazuo Ueda says about the future policy path.
Expectations of more expansionary fiscal measures in Japan have complicated the outlook for BOJ policy under which rates remain among the lowest in the world, in contrast to its peers elsewhere. Australia’s central bank on Tuesday warned of rate hike risks if inflation pressures prove to be stubborn.
Bart Wakabayashi, branch manager at State Street in Tokyo, said their flows suggested positioning on dollar/yen was neutral but showed buying of euro/yen and Aussie/yen.
Waiting on the FED
In the broader market, all eyes were on the Fed’s decision due later in the day, in which a 25-basis-point rate cut is almost fully priced in.
Ahead of the outcome, the euro was little changed at $1.1625, while sterling ticked 0.03% higher to $1.3301.
The dollar index , which measures the U.S. currency against six key rivals, was firm at 99.23.
Apart from the rate move, traders will also be focused on what Fed Chair Jerome Powell says and how many cuts the dot plot will lay out for 2026.
“The post-meeting press conference could be – as always – a wild card,” said John Velis, BNY’s Americas macro strategist.
“During recent FOMC pressers, Chair Powell’s tone has often departed from the actual policy action taken or the statement accompanying that action. We could easily see a rate cut, a dovish set of dots, and a somewhat hawkish qualitative assessment at Wednesday’s press conference.”
Investors have been dialling back on expectations of rate cuts in 2026 on lingering inflation concerns and expectations of a more resilient U.S. economy.
Data on Tuesday showed U.S. job openings increased marginally in October after surging in September.
White House economic adviser Kevin Hassett, the front-runner to be the Federal Reserve’s next chair, told the WSJ CEO Council on Tuesday there is “plenty of room” to cut interest rates further, though he added that if inflation rises the calculation may change.
In other currencies, the Australian dollar bought $0.6643, having risen to a near three-month high in the previous session on hawkish comments from Reserve Bank of Australia Governor Michele Bullock.
The New Zealand dollar eased 0.05% to $0.5776.
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