Forex News
Brown Brothers Harriman’s (BBH) Elias Haddad highlights that rising global bond yields and firmer Oil prices have pushed 30-year US Treasury yields back to pre-buyback levels, while USD/JPY has largely retraced its post-intervention slump. Treasury Secretary Scott Bessent’s framing of buybacks and yen intervention as signals effectively caps longer-term yields and USD/JPY, raising the cost of betting against Treasuries or the Japanese Yen (JPY).
Signals cap yields and Dollar Yen
"Global bond yields are rising to fresh highs, reflecting firmer crude oil prices and a higher expected path for major central banks’ policy rates."
"30-Year Treasury yields have erased the drop that followed the August 19 US Department of the Treasury buyback announcement, while USD/JPY has largely retraced its post July 31 joint US-Japan intervention slump."
"Treasury Secretary Scott Bessent defended the unscheduled buyback announcement as a signal, not an attempt to dictate market prices. His aim was to make sure market participants know that things aren’t a one-way trip, and that they’re “looking at fundamentals, and that the market does not dictate policy.”"
"Neither guarantees a reversal but both raise the cost of betting against Treasuries or JPY."
"The same logic likely applies to the yen intervention. In effect, Bessent has placed a cap on longer-term Treasury yields and USD/JPY."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
- USD/JPY advances toward 160.05 on Tuesday, gaining 0.19% on the day.
- Japan’s 10-year government bond yield reaches 3% for the first time since 1996.
- Scott Bessent expects Japanese authorities to take measures that could support the Japanese Yen.
USD/JPY trades around 160.05 on Tuesday at the time of writing, gaining 0.19% on the day, as the Japanese Yen (JPY) remains under pressure against the US Dollar (USD). The Japanese currency fails to benefit from rising domestic bond yields or comments from US Treasury Secretary Scott Bessent supporting a stronger Japanese Yen.
Japan’s 10-year government bond yield reaches 3% for the first time since September 1996. The rise comes amid inflation risks stemming from higher energy prices and speculation that the Bank of Japan (BoJ) may need to raise interest rates more quickly.
The increase in yields also reflects concerns over Japan’s public finances. Prime Minister Sanae Takaichi’s government plans significant investment spending, while a sustained rise in borrowing costs could increase the cost of servicing Japan’s massive public debt. These fiscal concerns appear to limit the support provided to the Japanese Yen by expectations of tighter monetary policy.
Meanwhile, US Treasury Secretary Scott Bessent says on Tuesday that he expects the Japanese government and the BoJ to take measures that would lead to a stronger Japanese Yen. His comments suggest that US authorities would like to see the Japanese central bank further normalize monetary policy.
Japanese Finance Minister Satsuki Katayama also says she met with Bessent, adding that both officials agreed on the importance of orderly Japanese Yen movements for global market stability. The United States (US) and Japan also reaffirm their willingness to continue cooperating on foreign exchange matters.
However, the Japanese Yen remains weak despite these comments and the rise in Japanese yields, allowing USD/JPY to approach the psychological 160.00 level once again. The Japanese currency’s limited reaction suggests that fiscal concerns continue, for now, to offset expectations of further monetary tightening by the BoJ.
Japanese Yen Price Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.16% | 0.08% | 0.19% | 0.24% | 0.19% | 0.20% | 0.22% | |
| EUR | -0.16% | -0.08% | 0.06% | 0.08% | 0.03% | 0.03% | 0.06% | |
| GBP | -0.08% | 0.08% | 0.11% | 0.17% | 0.12% | 0.14% | 0.14% | |
| JPY | -0.19% | -0.06% | -0.11% | 0.05% | -0.01% | 0.00% | 0.00% | |
| CAD | -0.24% | -0.08% | -0.17% | -0.05% | -0.06% | -0.07% | -0.04% | |
| AUD | -0.19% | -0.03% | -0.12% | 0.01% | 0.06% | 0.00% | 0.01% | |
| NZD | -0.20% | -0.03% | -0.14% | -0.01% | 0.07% | -0.01% | 0.03% | |
| CHF | -0.22% | -0.06% | -0.14% | -0.01% | 0.04% | -0.01% | -0.03% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
Commerzbank’s Dr. Vincent Stamer notes that Euro area headline inflation rose to 3.3% in August from 2.9% in July, driven mainly by higher energy prices linked to the Middle East conflict. Core inflation edged down to 2.4%, but the renewed move above 3% is seen as cementing an ECB rate hike in September, with further hikes unlikely as inflation is projected to ease next year.
Inflation dynamics and ECB outlook
"Inflation in the euro area jumped to 3.3% in August, up from 2.9% in July. Once again, rising energy prices in the wake of the conflict in the Middle East were largely responsible for this. Overall, the inflation rate was in line with expectations, but the core rate unexpectedly fell from 2.5% in July to 2.4% in August."
"We expect that in the coming months, many businesses – particularly in the manufacturing and food production sectors – will pass on the higher energy prices. In particular, high natural gas prices are likely to drive up costs in these sectors in the coming quarters. As a result, the core inflation rate is set to rise significantly over the course of the coming year."
"With the headline rate rising to 3.3%, inflation has moved further away from the ECB’s 2% target. Furthermore, inflation is moving ever closer to the ECB’s staff projections (Chart 2), in which the ECB has factored in two interest rate hikes. This clearly points to another interest rate hike by the ECB in September."
"It is unlikely that further rate hikes will follow after that, as the inflation rate is expected to fall again next year, in line with the ECB’s projections."
"According to preliminary data from Eurostat, headline inflation in the euro area jumped to 3.3% in August – up from 2.9% in July. Economists surveyed in advance had expected this. By contrast, the inflation rate excluding energy, food, alcohol and tobacco (core inflation) unexpectedly fell from 2.5% in July to 2.4% in August."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
Federal Reserve Governor Michael Barr said inflation remains too high and warned that a rate hike could become necessary if price pressures fail to moderate soon. Although he favours keeping rates steady while disinflation continues, solid economic growth and a stable labour market mean that persistent inflation remains a significant policy risk.
Key Quotes
Inflation remains too high.
Favours keeping rates steady if confident that inflation is moderating.
The labour market is stable, with low unemployment.
The economy is growing solidly, boosted by artificial intelligence investment.
If inflation does not moderate soon, it will be time for an interest rate hike.
Persistent inflation above target creates risks.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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