The Japanese yen edged up slightly on Monday from five-month lows, while the US dollar held its dominant position amid diverging central bank outlooks. The dollar index, which measures the greenback against a basket of six other major currencies, was down 0.1% at 107.86 on the day. The dollar has gained 2% in December and 6.35% year-to-date, underpinned by rising US yields and expectations for US rates to stay higher for longer.
The yen has shed more than 10% this year, on track for a fourth yearly decline against the greenback. The Bank of Japan (BOJ) held interest rates steady at 0.25% in its December policy meeting, but some policymakers gaining confidence in an imminent rate increase has boosted the yen. However, Japanese yields remain low, and recent comments have sown doubts about the BOJ’s commitment to lift rates.
Fawad Razaqzada, a market analyst, expects the yen to rally in coming months if the BOJ raises rates next year to support its currency. Traders are on watch for any potential intervention by Japanese officials to shore up the currency if it continues to weaken. The Japanese government has already spent zero yen on currency intervention between November 28 and December 26.
The euro rose 0.1% to $1.0441 on Monday, but is heading for a calendar-year drop of roughly 5.5% on the dollar. The next interest rate cut by the European Central Bank could be longer in coming after a recent uptick in inflation. The cryptocurrency bitcoin was up around 0.5% at $93,833, but is down about 3% on the month after retreating from a record high.
