By Samuel Indyk and Ankur Banerjee
LONDON, Feb 16 (Reuters) – The Japanese yen fell on Monday following meagre growth figures, while the U.S. dollar was broadly steady as recent inflation data bolstered bets for interest rate cuts from the Federal Reserve this year.
Liquidity is likely to be thin through the rest of Monday, with markets in the U.S. closed, while China, Taiwan and South Korea were also out for holidays.
The yen eased 0.4% to 153.32 per U.S. dollar on Monday after climbing nearly 3% last week – its biggest weekly jump in about 15 months – following Prime Minister Sanae Takaichi’s Liberal Democratic Party landslide election victory.
Data on Monday though laid bare some of the challenges facing Takaichi and her government, with Japan’s economy barely growing last quarter, eking out an annualised 0.2% expansion.
“After the election, the political dust may be settling a bit, for the near term at least, and we are seeing the yen increasingly becoming sensitive to data,” said Mohamad Al-Saraf, FX and fixed income associate at Danske Bank.
Bank of Japan Governor Kazuo Ueda and Takaichi held their first bilateral meeting since the election on Monday. Ueda said that the two had a “general exchange of views on economic and financial developments”.
He said the prime minister did not make any specific monetary policy requests.
The BOJ next meets on rates in March, with traders ascribing 20% odds for a hike. Economists polled by Reuters last month expected the central bank to wait until July before tightening policy again.
The BOJ lifted the key rate to a 30-year high of 0.75% in December, although that remains well below most major economies, leading to significant yen underperformance that triggered bouts of direct intervention to support the currency over the past few years.
FED RATE CUT WAGERS
Data on Friday showed U.S. consumer prices increased less than expected in January, giving the Fed additional leeway for policy easing this year.
“The markets are flirting with pricing in a third cut,” said Kyle Rodda, senior financial analyst at Capital.com.
Money market traders are pricing in 62 basis points of easing over the rest of this year, implying two quarter-point cuts and about a 50% chance of a third. The next cut is likely in June, with markets assigning over 80% chance of a 25 basis point reduction.
The euro was down about 0.1% at $1.1854, while sterling eased slightly to $1.3638.
The U.S. dollar index, which measures the currency against six major peers, was up just 0.1% at 97.06 after dropping 0.8% last week.
Much of the action after the inflation data was in the bond market. The U.S. two-year Treasury yield, which reflects Fed policy expectations, closed at its lowest level since 2022 on Friday, while the 10-year yield fell 4.8 basis points. U.S. bond markets are closed on Monday. [US/]
The Swiss franc was a touch softer at 0.7694 per U.S. dollar after gaining more than 1% last week, with investors increasingly wary of intervention from the Swiss National Bank to curb strength in the traditional safe haven.
The Australian dollar firmed 0.1% to $0.7076, hanging just below the three-year high of $0.71465 it scaled last week, while the New Zealand dollar was flat at $0.6037 ahead of the Reserve Bank of New Zealand’s policy meeting on Wednesday.
The central bank is widely expected to hold rates steady.
(Reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Kevin Buckland, Jan Harvey and Anil D’Silva)
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