The dollar strengthened against the Japanese yen on Friday following remarks by Bank of Japan (BOJ) governor Kazuo Ueda, who suggested caution regarding declaring victory on inflation. However, the dollar weakened against the euro after the release of U.S. economic data that fell short of expectations.
Meanwhile, bitcoin remained just below a more than two-year high reached earlier in the week. Ueda’s comments emphasized the need for further scrutiny of data regarding wage outlooks before concluding that inflation is on track to meet the central bank’s 2% target.
This statement caused the yen to depreciate, reversing a trend from the previous day when BOJ board member Hajime Takata suggested the necessity of considering changes to the central bank’s ultra-loose monetary policy, including potentially exiting negative interest rates and bond yield control.
The trajectory of inflation expectations and BOJ policy hinges significantly on the outcomes of negotiations between major corporations and labor unions regarding wage increases.
Bipan Rai, North American head of FX strategy at CIBC Capital in Toronto, noted that if wage negotiations yield signals indicating a more persistent inflationary trend in Japan, it could prompt the BOJ to consider exiting its negative interest rate policy.
Rai noted, “I feel like it is priced in already. Beyond there we’re really looking at what sort of tweaking they do to the yield curve control program.”
Major corporations are set to finalize negotiations on next year’s pay with labor unions on March 13, just ahead of the BOJ policy meeting scheduled for March 18-19. Economists anticipate wage increases averaging about 3.9%, surpassing the 3.58% pay rise agreement reached in 2023, which marked the highest increase in three decades.
At present, the dollar was up by 0.15% at 150.20 yen.
The dollar index slipped by 0.15% to 103.96, reversing earlier gains following the release of weaker-than-expected data from the University of Michigan’s sentiment survey.
Meanwhile, U.S. manufacturing continued to decline in February, with a measure of factory employment reaching a seven-month low amid a decrease in new orders. Conversely, growth in the U.S. services sector accelerated in January as new orders rose and employment rebounded. However, suppliers appeared to lag behind, leading to a surge in input prices to an 11-month high.
The greenback has remained mostly rangebound as investors assess data for fresh insights into when the Federal Reserve might initiate interest rate cuts.
Richmond Fed President Thomas Barkin mentioned on Friday that despite existing upward price pressures in the U.S. economy, it’s premature to anticipate when the Fed could potentially start reducing its benchmark interest rate.
U.S. inflation figures for January, released on Thursday, aligned with economists’ expectations. The next significant U.S. economic data release is scheduled for February’s employment report, set to be unveiled next Friday.
The euro advanced by 0.28% to $1.0833.
Eurozone inflation experienced a slight dip last month, but underlying price growth remained persistently high, reinforcing the argument for the European Central Bank to maintain record-high interest rates a bit longer before considering easing policy around mid-year.
The eurozone’s currency has traded within a range of $1.07 to $1.11 since November, reflecting investors’ uncertainty about when the ECB and the Fed might embark on rate cuts.
Sterling edged up by 0.09% to $1.2636.
Huw Pill, the chief economist at the Bank of England (BoE), remarked on Friday that he believed the timing for the central bank’s first interest rate cut since the onset of the coronavirus pandemic still remained “some way off.”
Bitcoin saw a 0.7% increase to $61,840, following its climb to $63,933 on Wednesday, marking its highest level since November 2021.