Author: Brigid Riley
TOKYO (Reuters) – The yen remained under pressure on Thursday as the Bank of Japan kept ultra-low interest rates steady while the U.S. dollar strengthened ahead of labor market data later this week and next week’s U.S. presidential election.
The Japanese currency lost value this month as yields on the dollar and U.S. Treasury bonds hovered around their highest levels since July.
The yen fell more than 6% in October and is on track for its biggest monthly loss against the dollar since November 2016.
The political upheaval in Japan has only worsened the situation for the yen, increasing uncertainty about the country’s fiscal and monetary policy prospects.
The BOJ kept interest rates steady on Thursday and more or less maintained its forecast that inflation will hover near its 2% inflation target in the coming years, signaling its readiness to continue rolling back massive monetary stimulus.
Analysts are divided on the prospect of additional interest rate increases by the end of the year, with focus on BoJ Governor Kazuo Ueda’s post-meeting briefing for guidance on the pace and timing of further increases.
The yen fell 0.02% to 153.34 against the dollar, largely unchanged after the BOJ’s decision as it held near a three-month low of 153.885 hit on Monday.
“Any current strengthening in the yen will likely come from a general weakening of the U.S. dollar if interest rates start to level out,” said Sean Teo, a trader at Saxo.
The yen’s recent decline may make many traders cautious, given that excessive weakness could attract the attention of Japanese authorities, he added.
Markets received more economic data from China ahead of the BOJ’s decision, and the Bureau of National Statistics’ manufacturing PMI showed activity rose in October for the first time in six months.
The official PMI rose to 50.1 in October from 49.8 in September, just above the 50-point divide between growth and contraction and above the median forecast of 49.9 in a Reuters poll.
The rate remained stable, the last quotation was 7.1309.
LABOR REPORT, PRESIDENTIAL ELECTIONS IN THE CENTER
Non-farm payrolls data in the US close the week on Friday, on the eve of Tuesday’s presidential election.
Some investors placed bets on the trades, betting on Republican candidate Donald Trump to win, although he is still neck-and-neck with Vice President Kamala Harris in several polls.
The gauge measuring the currency against its six main rivals rose 0.08% to 104.17 after weakening the previous day. On Tuesday, it reached the highest level since July 30 and amounted to 104.63.
“Overnight’s data confirmed the underlying strength of the US economy, largely supporting what is already baked into the price rather than providing a new catalyst for the price to rise again,” Westpac analysts wrote in a note.
On Wednesday, data showed U.S. private-sector employment growth rose in October, overcoming concerns about short-lived disruptions from hurricanes and strikes.
Meanwhile, separate data showed the U.S. economy grew at an annual rate of 2.8% in the third quarter, slightly below the 3% expected by economists.
The euro fell 0.06% to $1.0849 after rising as high as $1.0871 on Wednesday. Regional inflation and euro zone GDP data were stronger than expected on Wednesday, prompting traders to back off expectations for a December interest rate cut from the European Central Bank.
Sterling was at $1.29445, down 0.13% so far.
Elsewhere, the Australian dollar fell 0.02% to $0.6573 after domestic retail sales data for September missed estimates and rose just 0.1%. Analysts expected an augment of 0.3% in September.
The New Zealand dollar rose 0.04% to $0.5974.
