XM™/XMTrading™ (XM) | Japanese FX Account Opening Guide

Keep a close eye on yen movements amid expectations of a Bank of Japan interest rate hike and the LDP presidential election

Tokyo time, comments by Bank of Japan Governor Ueda led to a decline in expectations of a rate hike at the October meeting, leading to a broad yen weakening. In a speech this morning, Ueda, who attended a meeting co-hosted by four Osaka economic organizations, maintained his previous stance, saying, “We will continue to raise the policy interest rate in accordance with the state of the economy and prices,” but added, “First, it is important to maintain an accommodative monetary environment and support economic activity.” Last week, dovish Bank of Japan Policy Board member Noguchi hinted at a rate hike, and yesterday, Bank of Japan Deputy Governor Uchida stated, “The Japan-U.S. tariff agreement has reduced uncertainty about the future, and the September BOJ Tankan survey improved.” Market expectations were building that Ueda might also make more hawkish remarks. However, Ueda maintained a more cautious stance than expected, which led to a decline in interest rate hike expectations and a sell-off in the market. The U.S. dollar/yen (USDJPY) rose, strengthening buying momentum after Japanese investors entered the market. After Bank of Japan Governor Ueda’s comments were released, the index further rose, reaching a high of 147.80 yen for the first time in two days. As the yen weakened across the board, cross yen exchange rates also held firm. Major currencies other than the yen were largely unmoved, with dollar-straight pairs other than the US dollar/yen (USDJPY) remaining slightly flat across the board. Gold (GOLD)’s upward trend subsided, with a wait-and-see attitude. While it initially fell due to selling, it maintained a firm hold, rebounding below $3,840. In the stock market, the Nikkei Stock Average (JP225) rose 1.85% from the previous day, marking its second consecutive day of gains. Following the announcement that US-based OpenAI’s valuation reached $500 billion (over ¥73 trillion), making it the world’s largest private company, AI and tech stocks rose in the US stock market the previous day. Semiconductor-related stocks also saw strong buying in the Tokyo market, rising by more than ¥800 at one point. Due to the U.S. government shutdown, the release of the September U.S. employment statistics is scheduled to be postponed. With neither the ruling nor opposition parties showing any willingness to compromise, some have suggested the shutdown could be prolonged. Furthermore, the Liberal Democratic Party (LDP) presidential election will be held tomorrow, the 4th, which could potentially affect the yen’s exchange rate at the start of the week. Given the potential for volatility in both the U.S. dollar and the yen, we recommend caution when carrying over positions. Several Federal Reserve (FRB) officials are scheduled to speak today. New York Fed President Williams is scheduled to speak at 7:05 PM JST; FRB Board Member Milan at 10:35 PM JST; Dallas Fed President Logan at 4:30 PM JST; and FRB Vice Chairman Jefferson at 1:40 AM JST. With concerns that the partial U.S. government shutdown could be prolonged, we’ll want to see whether the Fed’s interest rate cut outlook will change. In a speech on the 29th of last month, New York Fed President Williams stated that he supported the interest rate cut at the September meeting in order to support the labor market. He stated that a small rate cut makes sense, supporting employment while curbing inflation. While he declined to comment on the possibility of further rate cuts, he indicated his desire to avoid an excessive slowdown in the labor market. Furthermore, Fed Vice Chairman Jefferson’s speech, scheduled for 26:40 Japan time, will focus on the economic outlook and monetary policy, so attention is focused on whether he will provide specific views on future interest rate cut prospects. Since the market expects a 0.25% rate cut at each of the two remaining meetings this year, if he indicates a positive stance on rate cuts, it is important to note that selling of the U.S. dollar may accelerate. Bank of England (BOE) Governor Andrew Bailey is scheduled to speak at 22:20 Japan time. With the next meeting just about a month away, attention will be focused on whether he will discuss the BOE’s monetary policy outlook. At the previous meeting in August, the Bank of England (BOE) left its policy rate unchanged at 4.00%, and the market expects it will likely refrain from lowering the rate at its November meeting. In a recent television interview on the 1st of this month, Bank of England Monetary Policy Committee (MPC) member Mann stated that “keeping the rate unchanged is appropriate at this time,” confirming that current policy is accommodative. Mann, a particularly hawkish MPC member, voted against the two previous rate cuts and has sounded the alarm about the risk of inflation rising. Meanwhile, Governor Bailey stated in an interview last month that “there is still room for interest rates to be lowered,” indicating that a rate cut is possible depending on the inflation rate. He hinted at the possibility of considering a rate cut amid consumer restraint and a slowing labor market. It will be interesting to see whether the possibility of a rate cut will be discussed in today’s remarks. The U.S. September ISM non-manufacturing index will be released at 11:00 PM Japan time. The ISM Non-Manufacturing Index, released by the Institute for Supply Management (ISM) on the third business day of each month, is based on a survey of U.S. non-manufacturing purchasing managers to gauge their business sentiment. A reading above 50 indicates economic expansion, while a reading below 50 indicates a recession. It is closely watched as a gauge of U.S. economic trends. The market forecast is 51.7, a slight decline from the previous month’s 52.0. The August reading exceeded market expectations and reached its highest level in six months. Among the components, new orders showed particularly notable growth, posting a significant increase for the first time in about a year, suggesting that the service industry, which accounts for a large portion of the U.S. economy, is regaining strength. While the continued rise in service inflation raises concerns about the risk of inflation exceeding expectations, it can also be seen as a sign of the U.S. economy’s underlying strength. A stronger-than-expected reading could be interpreted as a buying signal for the U.S. dollar, while a weaker-than-expected reading could be interpreted as a selling signal. Therefore, we will be keeping a close eye on the U.S. dollar’s movements after the index is released.