By Rae Wee and Alun John
SINGAPORE/LONDON (Reuters) -Japan’s yen firmed on Wednesday on growing bets on a rate hike at the Bank of Japan’s next meeting and cooling British inflation offered relief to the pound, but traders were reluctant to buy too much into either ahead of U.S. price data.
Those U.S. CPI numbers for December are the main scheduled global economic release of the week, and a figure that comes in above the 0.2% monthly increase in core consumer prices which markets expect could further limit the scope for Federal Reserve rate cuts this year.
That in turn would likely give greater impetus to this month’s global bond sell-off, which has also supported the dollar.
There was sufficient information to keep FX traders busy before then however, particularly in Japan, where the yen strengthened on the back of comments from BOJ Governor Kazuo Ueda, who said the central bank will raise interest rates and adjust the degree of monetary support if improvements in the economy and price conditions continue.
His remarks come just a day after deputy governor Ryozo Himino said the BOJ would debate whether to raise interest rates at next week’s policy meeting.
The dollar was last down 0.5% on the yen at 157.15 as Japanese government bond yields, particularly rate sensitive two-year yields hit multi-month highs. [JP]
“It would be an odd thing for the BOJ to skip January’s meeting,” said Jordan Rochester, head of EMEA fixed income, currencies and commodities strategy at Mizuho, pointing to multiple factors, including a pickup in Japanese CPI, firm wages, and higher oil prices.
“A lot of course depends on next Monday with Trump (his inauguration), if it wasn’t for that event risk this market would be close to fully pricing in the meeting.”
“The downside move in USD/JPY this morning is the right thing to see.”
Eyes were also on Britain, where data showed inflation slowed unexpectedly last month and core measures of price growth – tracked by the Bank of England – fell more sharply, welcome news for finance minister Rachel Reeves after a market selloff.
While British government bond yields fell sharply after the data, which caused investors to increase expectations of a Bank of England rate cut in February, the pound was little moved at $1.2205. [GB/]
Analysts said that as last week’s rise in gilt yields sparked worries about the state of the British economy, and caused the pound to fall, lower gilt yields were a support for sterling at present. [GBP/]
The euro was steady at $1.0302 as were most other majors, including the Swiss franc, at 0.9119 per dollar and the Australian dollar at $0.6197.
(Reporting by Rae Wee; Editing by Jamie Freed, Shri Navaratnam and Louise Heavens)
