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Yen Rebounds as Cooling US CPI Weighs on Dollar, Treasury Yields – Yahoo Finance

(Bloomberg) — The yen rose 1% overnight on Thursday, as traders bet the Federal Reserve will ease monetary policy this year on signs of easing U.S. inflation pressures. The gains expanded in Asian trading.

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Japan’s currency rose to the May 7 level of 154.32 yen to the dollar at around 8:25 a.m. in Tokyo. The currency’s rise on Wednesday avoided the need for Japanese authorities to intervene in the market to stem the currency’s decline.

The currency has soared in recent weeks, surpassing $160 to the dollar in late April for the first time since 1990, but has rebounded sharply following two allegations of interference by authorities.

Read more: Fed relief package lowers US inflation for first time in six months

Traders are increasingly betting that the Fed will cut interest rates following April’s Consumer Price Index (CPI) report, with swap prices showing an 85 chance of a quarter-point rate cut by the September FOMC meeting. This suggests that it exceeds %. On the other hand, there is growing speculation that the Bank of Japan will raise interest rates.

Yukio Ishizuki, senior currency strategist at Daiwa Securities (Tokyo), said, “If the yen breaks through some technical levels, the correction due to the recent depreciation of the yen will probably accelerate.A break below 154 yen is now in sight.” ” he said. “This movement is similar to November, when US Treasury yields fell as inflation slowed, putting downward pressure on the dollar-yen exchange rate as we head into the end of the year.”

Prospects that the world’s largest economy would shift gears and lower interest rates were enough to lift the yen as U.S. bond yields fell and the Bloomberg dollar benchmark fell to its lowest level in more than a month. . There is a large moat between Japan’s ultra-low interest rates and the US’s high interest rates, putting pressure on the Japanese currency, which recently hit a 34-year low.

The dollar-yen pair is “the USD cross that is most sensitive to movements in the U.S. bond market, and could move the most if U.S. interest rate investors bring forward the Fed’s interest rate cuts,” the head of G- said. Valentin Marinov said. 10 Foreign exchange research and strategy at Credit Agricole.

Read more: U.S. Treasuries soar as traders see easing inflation will help Fed cut rates

Wednesday’s data showed that the so-called core measure of U.S. inflation, which excludes volatile food and energy costs, rose 0.3% from March, while year-on-year growth in core prices slowed to 3.6%. became.

The yen has depreciated by about 12% over the past year, making it the worst-performing currency among 10 national and regional currencies. Sentiment was very poor even after the Bank of Japan raised short-term policy rates in March for the first time since 2007, with bears dominating the market.

To stem losses, Japan is suspected of buying yen twice, in late April and early May, for a total of about 9 trillion yen ($58.3 billion), according to calculations by Bloomberg. Masato Kanda, the country’s top monetary authority, declined to comment on whether authorities had intervened.

“The Bank of Japan definitely breathed a sigh of relief with the CPI announcement,” said Helen Given, a foreign exchange trader at Monex Securities. Still, he added, “The upper bound for USD/JPY strength is at the 150 level until the Fed starts cutting rates, and the interest rate spread is still quite large.”

Despite Japan’s recent efforts, market participants argue that the yen continues to face long-term pressure. Former U.S. Treasury Secretary Lawrence Summers said foreign exchange intervention would have no effect on exchange rate fluctuations, even if the scale of Japan’s intervention was considered large.

–With assistance from Masaki Kondo, Yumi Teso, Brett Miller, and Saburo Funabiki.

(Updates overall market price and adds strategist comments.)

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