The Japanese yen hit session highs against the dollar on Friday, buzzing with news that Prime Minister Shinzo Abe is resigning as the dollar fell after the US Federal Reserve said it would adopt an average inflation target. Japanese stocks fell and the yen in safe harbor wiped out some recent losses overnight when it was reported that Abe, the nation’s longest-serving prime minister, will fall due to deteriorating health.
The yen that had fallen to a two-week made at 106,945 yen per. US dollar, rose in the news to as strong as 106,025 at 0717 GMT. At 0735 GMT, it had eased slightly to 106.06, a 0.5% increase since New York closed. ING strategists wrote in a note to clients that “Abenomics” was one of the main factors in the yen’s weakness in previous years. But, they said, what matters most to the yen is the Bank of Japan’s position, and that it is too early to say whether Abe’s resignation would have a significant impact on the central bank.
Nevertheless, concerns about the shift after Abe increase in the political stance on our bearish USD / JPY outlook (we target USD / JPY 102 at year-end), although we continue to see USD weakness as the main driver of the cross, ING added . At the highly anticipated virtual Jackson Hole conference, Fed Chairman Jerome Powell said the US Federal Reserve would, on average, try to keep inflation at 2%, so periods of too low inflation would likely be followed by an attempt to lift inflation above 2 % in some time.
In practice, market participants expect this to mean that current ultra-low rates will remain lower for longer. The dollar fell to as low as 92418 against a basket of currencies while Powell was talking, and went back quickly. But it began to slide again overnight, leaving losses in early London trade.
Kl. At 0726 GMT, the dollar index was at 92477, down 0.6% on the day and almost as low as it was in initial sales on Thursday. Commerzbank FX analyst Thu Lan Nguyen wrote to clients that this new strategy made US monetary policy a black box – a system whose behavior cannot be understood from the outside – as it suggested that the Fed did not follow any specific formula to determine when to should raise interest rates and be able to choose the time period during which average inflation is to be measured.
“It appears that the market has not fully understood the implications of yesterday’s monetary policy change for the US currency,” she wrote. “Obviously, the dollar had to take a pummeling already in the last few weeks, but I can see further depreciation potential.” The foreign exchange markets were largely pro-risk – the New Zealand dollar rose to new two-week highs against the US dollar, while the Australian dollar rose to its highest since December 2018 at 0.73135.
The US dollar also lost approx. 1% to the Norwegian krone and 0.9% to the Swedish krona. As the dollar weakened, the euro rose to as high as $ 1.18975 at 0726 GMT. The single currency seemed slightly affected by weakened consumer morale in Germany, which raised doubts about household consumption in Europe’s largest economy.
Elsewhere, China’s offshore yuan rose to new highs in 7 months against the dollar.