The yen rose on Friday as traders considered comments from Bank of Japan Governor Kazuo Ueda, who sought to calm lingering nerves after a surprise rate hike last month, while markets braced for a speech from Federal Reserve Chair Jerome Powell.

With the spotlight squarely on the central bankers, Ueda appeared first in Japan's parliament to explain the rate increase that had rattled investors.

The yen was 0.38 % higher at 145.75 per dollar on Friday in choppy trading after Ueda reaffirmed his resolve to raise rates if inflation stayed on course to sustainably hit the 2% target, but warned financial markets remained unstable.

"His (Ueda) comments suggest that market turbulence won’t deter the BOJ from considering more rate hikes in the future even if the next move isn’t imminent," said Vasu Menon, managing director of investment strategy at OCBC.

"As long as the move in the dollar-yen is orderly and gradual, this should not rattle global markets as much as it did earlier this month."

Bouts of Japanese interventions and the interest rate hike in July tripped up investors who unwound the popular carry trade, in which traders borrowed yen to finance high-yielding assets, yanking the yen away from the 38-year lows touched last month.

The move from the BOJ coupled with worries of U.S. recession triggered a massive global selloff in early August, although most markets have recovered since then.

The dollar index, which measures the greenback versus six major peers, was 0.11% lower at 101.35 after rising 0.34% in the previous session, but it remained close to the 2024 low of 100.92 it touched on Wednesday. The index is headed for fifth straight week of losses.

Fed policymakers on Thursday lined up in support of the U.S. starting interest rate cuts next month now that inflation is down from its highs and the U.S. labour market is cooling, though one signalled he is in no rush to ease policy.

That sets the stage for Fed's Powell, who is due to speak at a central bank event in Jackson Hole, Wyoming, later on Friday where traders will tune in to gauge when and by how much the Fed could lower borrowing costs in the near term.

Nomura analysts said Powell's speech is likely to be measured and balanced and he is unlikely to sway from the easing path hinted at by the minutes of Fed's last meeting.

Markets are now pricing in a 73.5% chance of the Fed cutting rates by 25 basis points (bps) at its September meeting, the CME FedWatch tool showed, with traders backing away from bets on a 50 bps cut next month.

Traders are anticipating 100 bps of easing in the next three meetings left in the year, although some analysts think markets are being far too aggressive and could be disappointed if Powell is cautious.

Blerina Uruci, chief US economist at T Rowe Price (NASDAQ:TROW), expects Powell to provide stronger guidance that the easing cycle is about to start and about the pace of cuts in the coming months.

"Powell will provide some guidance about the pace of future cuts, by using words such as 'gradual' or 'methodical' which would imply a series of 25 basis points cuts."

Given market pricing of an aggressive cutting cycle over the next year, this will likely be perceived as a hawkish speech, according to Uruci.

Elsewhere, the euro was last up 0.12% at $1.1126, not far from the 13-month high it touched on Wednesday, while sterling was steady at $1.31065, just shy of the 13-month high it hit on Thursday.

Markets are now pricing in more rate cuts from the Fed by year-end than for the European Central Bank or Bank of England.

The Australian dollar was up 0.25% at $0.6722, while the New Zealand dollar was 0.17% higher at $0.6151, supported by a rise in risk appetite. [AUD/]

Source : Economy News by Reuters - Aug 23, 2024