The Japanese yen rose in the Asian market on Monday against a basket of global currencies, extending its gains for the second day in a row against the US dollar, recording the highest level in three months, due to recent developments in the US bond market.

The yield on ten-year bonds fell to the lowest level in several months, due to cautious statements by the Chairman of the Federal Reserve, which strongly strengthened the possibilities of lowering US interest rates starting in March 2024.

Japanese yen exchange rate today

The dollar fell against the yen by 0.3% to (146.23 yen), the lowest since last September 11, from today's opening price of (146.66 yen), and recorded the highest level at (146.83 yen).

On Friday, the yen achieved a 1.0% rise against the dollar, the fifth daily gain in the last six days, and the largest daily gain since last July 12, due to the acceleration of the selling of the US currency against a basket of major and minor currencies.

In terms of last week's transactions, the Japanese yen achieved an increase of 1.8% against the US dollar, the third weekly gain in a row, thanks to speculation about the Central Bank of Japan's exit from the negative interest rate policy in the near term.

Yield on US bonds

The yield on 10-year US Treasury bonds on Monday traded near a three-month low of 4.197%, putting heavy pressure on the performance of the US dollar in the foreign exchange market.

This development in the US bond market follows recent comments by Federal Reserve Chairman Jerome Powell, which were less aggressive than expected in the markets.

Powell said it was clear that US monetary policy was slowing the economy as expected, with the benchmark overnight interest rate in restrictive territory. However, Powell indicated that the Fed is prepared to tighten policy further if it sees fit.

This is in addition to data that showed the manufacturing sector stagnated in the United States for the twelfth consecutive month in November, in the latest data that indicates a slowdown in the American economy during the fourth quarter of this year.

Following these comments and statements, the pricing of futures contracts for the possibility of raising US interest rates fell by about 25 basis points during the meeting of December 12-13, from 4.5% to 2.5%, and the pricing of futures contracts for the possibility of keeping interest rates unchanged rose from 95.5% to 2.5%. 97.5%.

Futures pricing for the possibility of cutting US interest rates by about 25 basis points during the March 2024 meeting rose from 43% to 64%, and futures pricing for the possibility of cutting interest rates by about 25 basis points during the May meeting from 76% to 90%.

This development narrows the current gap between long-term bond yields between Japan and the United States, which makes Japan's currency yields an investment target for short buyers and financing deals, which is causing the yen to rise at the moment.

Expectations

Former Japanese Finance Ministry chief of staff Toshiro Muto said in a press interview: There is a great chance that the Bank of Japan will cancel the policy of yield curve control and negative interest rates early next year, and he expected this to happen at the April 2024 meeting.

The former Deputy Governor of the Bank of Japan explained: This measure depends on the wage negotiations scheduled to be held next spring, at which time the Bank of Japan will get to see some evidence of the sustainability of inflation driven by wage growth.