Yen Strengthens for Fourth Consecutive Day, Dollar Under Pressure

　　The yen has strengthened against the dollar for the fourth consecutive day, and the decline in U.S. Treasury yields has extended the rally of emerging market currencies to Asia. This trend has been further supported by new economic data, which has fueled expectations for Federal Reserve policy easing.

　　Image Source: The Wall Street Journal

　　Regional stock markets have shown volatility, with the yen rising to around 141 against the dollar, putting pressure on the Japanese stock market. Following a fourth consecutive day of gains on Wall Street, major indices in Australia, South Korea, Hong Kong, and China have also risen.

　　During Asian trading hours, the 10-year U.S. Treasury yield dropped by 3 basis points, which put pressure on the dollar. Meanwhile, emerging Asian currencies, including the Korean won, continued their rally from Latin American currencies.

　　Data released on Thursday showed that the U.S. Producer Price Index (PPI) slightly rebounded in August after a downward revision in the previous month. This has led to range-bound trading in the stock market, with investors needing to remain cautious ahead of next weeks Federal Reserve policy meeting. Although the inflation data favored by the Fed showed little change, it did not alter market expectations for a rate cut by the Fed.

　　However, it is important to note that the further drop in Treasury yields and the broad weakness of the dollar indicate that some investors are still betting on a larger-than-usual first rate cut of 50 basis points by the Fed.

　　Policymakers have clearly stated that they are currently more focused on softness in the labor market, which is likely to drive policy discussions in the coming months.

　　Chris Larkin at E*Trade from Morgan Stanley said, “With PPI data basically aligning with yesterdays CPI data and jobless claims meeting expectations, the conditions for the Fed to begin a rate-cutting cycle are in place. The market anticipates an initial 25 basis-point cut, but discussions will soon turn to how far and how fast the Fed might cut rates over time.”

BOJ Rate Hike

　　According to a Bloomberg survey, just over half of the observers expect the Bank of Japan to conduct its next rate hike in December, with no one expecting a policy move at next weeks meeting.

　　In the past four weeks, five out of nine board members have indicated their intention to raise rates again if the Bank of Japan's inflation outlook is realized. The market volatility following the Bank of Japans rate hike on July 31 has not deterred policymakers from their normalization path.

　　Masamichi Adachi, Chief Japan Economist at UBS Securities, stated, “The chances of a rate hike at this meeting are extremely low. It is too early to assess the impact of the July rate hike and market turmoil.”