The yen rose against the US dollar on Friday after two government officials said Kazuo Ueda could become the next BOJ governor. However, the coin crashed soon after due to Ueda’s comments. He is considered more aggressive than other candidates. However, Ueda said the Bank of Japan is still on the right track and agreed with the ultra-easy monetary policy.
Investors expect the BOJ to change its stance and become more aggressive. Consequently, Ueda’s announcement caused the Japanese yen to fall. According to the Nikkei report, the authorities planned to nominate academic Ueda for the post of governor. This news lifted the yen until Ueda shattered traders’ expectations.
On Friday, the dollar fell 1.2% to 129.8 Japanese yen. However, it changed hands just 0.5% lower at 130.90 yen at last. The dollar recovered almost half of its losses. The Bank of Japan surprised the markets in December. Raised the cap on 10-year government bond yields from 0.25% to 0.5%. Investors have since discussed whether the bank would go further and raise interest rates. But the BOJ stuck to its policy at its last meeting.
Until recently, BOJ deputy governor Masayoshi Amamiya was the most likely candidate for the post. But he decided to turn down the job. Simon Harvey, head of currency research at Monex Europe, noted that investors thought Amamiya would continue the work of Kuroda (current BOJ governor). But that is not happening. While future central bank decisions depend on the spring wage negotiations, the new governor could also change course.
How are European fiats doing?
The common currency fell against the yen, shedding 1%. However, it managed to recoup some of the losses later and traded 0.6% lower at ¥140.34 at last. Sterling also lost 1% against the Japanese currency, trading at 158.53 yen. Meanwhile, the Australian dollar plunged 0.4%.
Against the US dollar, the euro fell 0.1% to $1.0726. It seemed to be about to experience a second straight week of losses. However, the British pound traded flat at $1.2118 today. The UK has avoided a technical recession so far. Despite that, reports showed that the economy has not grown at all in the last three months of 2022.
On Friday, the US dollar index was broadly stable at 103.17 against the basket of six major currencies. It moved in a narrow range. Overall, the index looks set to gain 0.2% this week. It will likely be its second positive week in a row after heavy losses for the coin in recent months.
Also, the Norwegian krone rallied against the dollar and the euro on Friday. The country’s core inflation rate spiked in January, reaching its highest level. According to Harvey of Monex Europe, Norway and Sweden are in a similar situation. Both countries are trying to reduce domestic inflation. They are likely to be forced to raise interest rates more than they prefer. Sweden’s central bank already raised its key interest rate to 3% on Thursday.
What about emerging market currencies?
Most of the emerging Asian currencies struggled recently due to the rally in the dollar. They looked set to end this week with losses. Stocks in the region also decoupled significantly as market sentiment moved towards risk aversion.
On Friday, the Indonesian rupiah fell 0.3%. It looked like it would end this week with losses of 1.5%. The Philippine peso also suffered. It fell 0.1%.
Additionally, Thailand’s baht experienced its worst week since late November 2021. The currency has soared 2.7% so far in 2023. But today it is down 0.3%.
The Malaysian ringgit also fell 0.4%. It was on track for a 1.7% drop for this week. On the other hand, shares in Kuala Lumpur rose 0.5%. In the fourth quarter, the country’s economy exceeded analysts’ expectations. That was partly due to strong domestic demand. Malaysia’s central bank stated that the country would likely avoid a recession despite the global economic slowdown.
Its gross domestic product (GDP) last year was reportedly 8.7% higher compared to 2021. That’s the country’s fastest annual growth in the past 22 years. However, its central bank kept the benchmark interest rate unchanged in January. That step surprised the markets. But the bank is cautious about avoiding a recession after four consecutive rate hikes in 2022.
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