Yen Heads for Best Week Since July as Dovish Fed Remarks Weaken US Dollar

Most Asian currencies advanced on Friday, with the Japanese yen poised for its strongest weekly performance since late July, as dovish commentary from a key U.S. Federal Reserve official weighed on the dollar and tempered expectations for another interest rate hike.

Dollar Retreats as Fed Hike Bets Fade

The U.S. dollar came under pressure after Federal Reserve Governor Christopher Waller indicated he could support keeping interest rates unchanged this month if upcoming data shows inflation continuing to ease. According to Investing.com, markets subsequently repriced the implied probability of a September rate hike down to 50% from approximately 63% a day earlier.

The U.S. Dollar Index, which measures the greenback against a basket of trade partners' currencies, was little changed on the day but remained on track for a weekly decline of about 0.7%. Investor focus has now shifted to Friday’s U.S. non-farm payrolls report, which will be critical for shaping the Fed's next policy decision.

Yen Surges on Hawkish BOJ Outlook

The Japanese yen was a standout performer, on course to gain about 2.5% for the week. This marks its largest such advance since late July, when Japan and the United States conducted a rare joint intervention to support the currency.

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Analysts attribute the current rally less to direct intervention and more to growing expectations that the Bank of Japan (BOJ) may adopt a more hawkish stance at its September 17-18 policy meeting. Adding to the intervention watch, Japan's top currency diplomat, Atsushi Mimura, stated Friday that he remains alert to exchange-rate moves and is in constant contact with U.S. authorities.

Other Regional Currencies

Movements in other Asia-Pacific currencies were influenced by local central bank policy and economic data:

• The Chinese yuan held steady, supported by broad dollar weakness as investors assessed mixed domestic economic signals.
• The New Zealand dollar firmed, recovering from a less-hawkish-than-expected guidance that followed the Reserve Bank of New Zealand's 25-basis-point rate hike to 2.75% on Wednesday.
• The Australian dollar traded slightly lower against the U.S. dollar following recent releases of quarterly GDP and monthly trade balance figures.
• The Malaysian ringgit saw a muted reaction after Bank Negara Malaysia held its key policy rate at 2.75% on Thursday.