The dollar rose against the yen on Monday after Japan’s top central banker flagged further policy tightening ahead but left open the question of timing, leaving the market no clearer on whether a move would come next month.
Bank of Japan Governor Kazuo Ueda reiterated that interest rates would continue to rise gradually should the economy develop in line with the central bank’s outlook.
However, he made no mention of whether a hike would come in December, saying the BOJ would need to pay attention to various risks, including for the U.S. economy.
Later in a media conference, Ueda added that they would not wait for clarity on all the risks before acting on rates, and delaying might end up requiring more aggressive hikes.
That left the market pricing in a 54% chance of a quarter-point hike at the next policy meeting on Dec. 19, little changed from before the speech.
This was his first opportunity to speak directly on monetary policy since Donald Trump’s victory in the U.S. presidential election on Nov. 5, leading investors to wonder if he would be more specific on the prospects for a hike.
The lack of clear guidance saw the dollar edge up 0.35% to 154.72 yen and away from Friday’s low of 153.86. It pulled back late last week after Japanese Finance Minister Katsunobu Kato on Friday put the market on warning of possible intervention if the yen fell too far and too fast.
That retreat had helped steady the euro for the moment at $1.0540, though that was still uncomfortably close to the recent one-year trough of $1.0496.
Against a basket of currencies the dollar held at 106.660, having touched a one-year top of 107.07 on Friday. The index climbed 1.6% over the week, marking six weeks of gains in the last seven.
The rally has coincided with a savage swing in 10-year Treasury yields, which have climbed 70 basis points since the start of October, fuelling a 5.4% rise in the U.S. dollar index.
PRICING U.S. EXCEPTIONALISM
“While a period of consolidation looks likely in the near term, we have revised up our forecasts for the dollar and now project a further 5% appreciation by the end of 2025,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.
“That is based primarily on a view that Trump will push ahead with the core tariff policies he proposed on the campaign trail and that the U.S. economy will continue to outperform its major peers.”
Markets are eager to hear who Trump will pick as Treasury Secretary, with Howard Lutnick, the CEO of Cantor Fitzgerald, and investor Scott Bessent top candidates for the job.
Analysts generally assume Trump’s touted policies of tariffs, reduced immigration and debt-funded tax cuts will be inflationary, so limiting the scope for further rate cuts by the Federal Reserve.
Futures imply a 60% chance of the Fed easing by a quarter-point in December and have only 77 basis points of cuts priced in by late 2025, compared with more than 100 a few weeks ago.
At least seven Fed officials are due to speak this week and traders assume they will sound cautious on aggressive cuts.
A number of European Central Bankers are also speaking this week and could sound more dovish given recent soft economic data and the risk of tariffs hitting EU trade.
