Japanese Yen Hits Two-Week Low Amid US Rate Hike Expectations

The Japanese yen weakened further on Wednesday, reaching a two-week low against the US dollar and other major currencies. This decline came as investors continued to favor the dollar, anticipating a potential rate hike by the Federal Reserve later this year. The USD/JPY pair rose around 0.3% to ¥158.51, its highest level since September 25, following renewed buying interest in the US currency.

Bank of Japan Governor Kazuo Ueda’s recent comments were seen as less hawkish than expected, reducing the likelihood of an interest rate hike in October. Following his speech, the probability of a rate increase dropped from 35% to 25%. Investors are now waiting for more economic data from Japan to reassess their expectations.

The US Dollar Index gained 0.25% on Wednesday, supported by strong expectations of a December rate hike and rising political risks in Europe and the Middle East. The 10-year US Treasury yield also climbed 0.5%, reinforcing the dollar’s strength. Markets are eagerly awaiting the Federal Reserve’s meeting minutes for further insights into US monetary policy.

Governor Ueda noted that financial conditions remain accommodative despite recent rate adjustments and that the central bank will continue to raise borrowing costs gradually. He also highlighted inflationary pressures from higher raw material costs, a weaker yen, AI-related demand, and geopolitical tensions.