The Japanese yen hovered near five-month lows on Monday, pressured by rising U.S. yields, as subdued year-end trading kept most currencies range-bound. The yen traded at 157.82, with intervention concerns from Japanese authorities deterring another test of the 160 level, last seen in July.
The dollar index, which measures the greenback against major currencies, remained steady at 107.99. Meanwhile, the euro was at $1.0429, lingering near recent lows amid quiet holiday trading. The euro is on track for a roughly 5.5% decline against the dollar this year.
U.S. Treasury yields continue to support the dollar, with the benchmark 10-year yield hitting a seven-month high last week and staying near 4.625% on Monday. Chris Weston, head of research at Pepperstone, noted, “Despite widespread predictions of a weaker U.S. dollar in 2024, the greenback is poised to end the year stronger against all major currencies, maintaining its dominance.”
The dollar index has gained 2.3% this month, bringing its year-to-date rise to 6.6%. The dollar’s strength has been underpinned by expectations of pro-growth, inflationary policies from the incoming U.S. administration, including looser regulations, tax cuts, and tariff increases.
Since Dec. 3, the dollar has climbed 10 yen, with the Japanese currency weakening notably after the Federal Reserve signaled caution on rate cuts during its Dec. 18 meeting. The yen hit a six-month low of 158.09 per dollar last week and has declined 10.6% this year.
The yen saw a modest recovery on Friday after the Bank of Japan (BOJ) hinted at potential rate increases and reduced monthly bond purchases. However, Japanese yields remain low, and questions linger over the BOJ’s commitment to tightening. Governor Kazuo Ueda emphasized the need to assess wage data and the economic policies of the incoming U.S. administration before deciding on rate adjustments.
A Reuters poll suggests the BOJ might raise rates to 0.50% by March, though markets only assign a 42% probability of a rate hike in January. Japanese officials remain vigilant, with Finance Minister Katsunobu Kato reiterating the possibility of intervention to stabilize the yen.
Chris Weston highlighted that dollar buying continues to dominate the dollar-yen pair, noting that a break above 158.00 could encourage further buying, despite risks of intervention.
Elsewhere, major currencies saw muted moves last week, with the yen down 0.9%, the euro slipping 0.2%, and sterling rising 0.1%. The dollar index edged up 0.2%. ECB Governing Council member Robert Holzmann suggested a longer delay in the next rate cut due to a recent inflation uptick.
In the cryptocurrency market, Bitcoin remained subdued at $93,052, down about 4% for the month after peaking at $108,379.28 on Dec. 17. Despite the pullback, Bitcoin has surged approximately 115% this year.
