Yen rallies as BOJ hike bets firm; stocks steady and dollar mixed ahead of Fed
The Japanese yen extended gains as traders priced in a potential Bank of Japan rate increase this month, while European stocks firmed and U.S. yields ticked higher in quiet trade before next week’s Federal Reserve decision.
Market highlights
- Yen leads G10; USD/JPY slips to around 154.55, its weakest since mid-November
- CAD underperforms as USD/CAD nudges up to 1.3968; AUD/USD edges to 0.6610
- EUR/USD pinned near 1.1675, option-related flows cap moves; GBP/USD steady at 1.3353
- European equities trade higher; S&P 500 futures up 0.1%
- U.S. 10-year Treasury yields rise 2.7 bps to 4.085%
- Gold dips 0.2% to $4,197.85; WTI crude gains 0.6% to $59.30; Bitcoin down 0.9% to $92,928
BOJ signal lifts yen as carry appetite cools
The yen outperformed after reports suggested the Bank of Japan is likely to raise rates again later this month, reinforcing the more hawkish tone struck by Governor Kazuo Ueda earlier in the week. Traders trimmed carry trades and pushed USD/JPY down from early levels near 155.10 to about 154.55, the lowest in roughly three weeks.
Policy expectations for a mid-December move—despite domestic political noise—are narrowing rate differentials at the margin and nudging Japanese yields higher, a backdrop that often cools the dollar-yen uptrend. With positioning crowded after last month’s jump, dealers noted better demand for downside USD/JPY hedges as implied vols edged up.
Majors muted; euro pinned by expiries, sterling steady
Outside the yen, majors were listless. EUR/USD held near 1.1675 as sizeable option expiries kept the pair glued to its range, even after ECB policymaker Piero Cipollone said inflation risks now look balanced. Eurozone October retail sales were flat month-on-month, while Germany’s construction PMI improved to 45.2 but stayed in contraction. The UK’s construction PMI slumped to 39.4, underlining a deeper slowdown.
GBP/USD hovered around 1.3353. Commodity-linked FX lagged, with USD/CAD up 0.1% to 1.3968 and AUD/USD up by a similar margin to 0.6610. In Asia, traders flagged reports that Chinese state-owned banks were buying dollars to temper a surging yuan, a flow that can weigh on regional proxies like the Aussie.
Stocks firm in Europe; U.S. futures cautious as yields inch up
European indices advanced, with the DAX rebounding after prior-session weakness. U.S. futures were mostly unchanged to slightly higher, with S&P 500 contracts up around 0.1% as traders stayed on the sidelines ahead of next week’s Fed meeting. The 10-year Treasury yield rose to 4.085%, a modest drift higher that partly reflects caution ahead of fresh U.S. labor data later today.
Liquidity remained thin, tempering risk appetite, especially with no U.S. non-farm payrolls release this week due to calendar quirks.
Commodities: gold eases, oil edges up, crypto softer
Gold slipped 0.2% to $4,197.85, extending a cautious start to the month as higher yields and a steadier dollar sapped momentum. Silver fell sharply earlier—at one point erasing the week’s gains—before bouncing to $57.53, still down 1.6% on the day after a low at $56.65. Oil was firmer, with WTI up 0.6% to $59.30 amid bargain hunting. Bitcoin eased 0.9% to $92,928, tracking a broader pullback in risk assets.
Macro diary: U.S. labor prints, ECB tone, China policy signals
Markets will parse U.S. Challenger job cuts and weekly initial jobless claims for clues on labor-market cooling ahead of the Fed. In Europe, the ECB’s measured tone—“balanced” inflation risks—added little directional impetus to the euro. In China, President Xi Jinping signaled a push to expand domestic demand in the upcoming 15th Five-Year Plan, a medium-term growth cue that could support regional risk sentiment but carries little immediate market impact.
What to watch next
- USD/JPY reaction to BOJ headlines and any shift in front-end JGB yields
- U.S. initial claims and corporate layoff trends before the Fed’s decision
- Option expiries around EUR/USD that may continue to cap intraday ranges
- China FX operations and knock-on effects for AUD and EM Asia FX
FAQ
Why is the Japanese yen strengthening today?
The yen rose after reports reinforced expectations that the Bank of Japan could raise rates later this month. Narrowing policy differentials and a modest uptick in Japanese yields pressured USD/JPY toward 154.55, its lowest in weeks.
What are markets waiting for before taking bigger positions?
Traders are largely sidelined ahead of next week’s Federal Reserve decision. With no U.S. non-farm payrolls this week, labor indicators like initial jobless claims and Challenger job cuts serve as interim guides, but overall risk appetite remains muted.
How did European data affect the euro?
The euro held near 1.1675 as option expiries constrained movement. ECB’s Cipollone said inflation risks are balanced, Eurozone retail sales were flat, and Germany’s construction PMI improved but remained below 50. The data and ECB tone offered little fresh direction.
What is happening with China’s currency policy today?
Reports indicated Chinese state-owned banks were buying dollars to temper a rapidly appreciating yuan. Such flows can indirectly pressure Asia FX peers and commodities-linked currencies like the Australian dollar.
Why are gold and silver softer?
A small rise in U.S. yields and a steadier dollar weighed on precious metals. Gold dipped below $4,200, while silver fell more sharply intraday before partially recovering. Positioning and thin liquidity may be amplifying moves.
Which currencies led and lagged today?
The Japanese yen led gains among G10 currencies, while the Canadian dollar lagged. USD/CAD edged up to 1.3968, reflecting softer commodity-FX sentiment and a mild rise in U.S. yields.
What should FX traders watch next?
Key catalysts include U.S. jobless claims, any BOJ-related headlines into the mid-December meeting, and option expiries that could pin majors like EUR/USD. Shifts in U.S. yields will continue to drive dollar momentum. For more market coverage, follow BPayNews.
