Yen furthers gains as bets firm on an aggressive Fed rate cut
SINGAPORE -The yen hit its highest levels in more than a year on Monday in trading thinned by a holiday in Japan, as market participants increasingly expected an oversized rate cut by the Federal Reserve later this week.The dollar was down 0.47% at 140.15 yen, falling further from the 140.285 end-December low it struck on Friday to levels last seen in July 2023. It fell 1.3% on the yen last week.
Benchmark 10-year yields are down 30 basis points in about two weeks. Cash Treasuries were not traded in Asia due to the Japan holiday. Two-year yields, more closely linked to monetary policy expectations were around 3.57% and down from roughly 3.94% two weeks ago. Fed speakers and data releases over the past month have had markets shifting the odds around the size of this week's rate cut, debating whether the Fed will head off weakness in the labor market with aggressive cuts or take a slower wait-and-see approach.
Investors are also looking to the Bank of Japan's interest rate decision on Friday, when it is expected to keep its short-term policy rate target steady at 0.25%. Sanae Takaichi, one of the leading contenders to replace Kishida, said on Friday the Bank of Japan should hold off on further interest rate hikes, to keep the country's economic recovery intact.
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