**Dollar Strengthens Against Yen Amid BoJ Uncertainty: Forex Traders Should Watch for Key Developments**
By Wayne Cole
SYDNEY (Reuters) – The dollar gained ground against the Japanese yen on Monday following comments from Bank of Japan (BoJ) Governor Kazuo Ueda, who indicated potential future tightening of monetary policy. However, he remained ambiguous regarding the timing of any interest rate hikes, leaving forex traders with mixed signals on the near-term outlook for the yen.
Governor Ueda emphasized that interest rates would likely increase gradually if economic conditions align with the central bank’s forecasts. Notably, he refrained from specifying whether a rate hike would occur in December, instead highlighting the need to weigh various economic risks, including those associated with the U.S. economy.
During a media conference, Ueda clarified that the BoJ would not wait for complete clarity on all risks before making decisions on interest rates, noting that procrastination could necessitate more substantial hikes later. Market participants adjusted their expectations, currently pricing in a 54% probability for a quarter-point increase during the next policy meeting scheduled for December 19.
This was Ueda’s first engagement on monetary policy since Donald Trump’s election victory on November 5, prompting market speculation about the implications for Japanese monetary policy. The uncertainty surrounding rate hikes contributed to the dollar’s rise, which increased by 0.35% to 154.72 yen, broadly recovering from Friday’s low of 153.86. Notably, recent comments from Japanese Finance Minister Katsunobu Kato, warning of potential intervention if the yen weakens excessively, had briefly supported the yen.
The euro’s performance mirrored this volatility, stabilizing for now at $1.0540, yet remaining perilously close to its recent one-year low of $1.0496. The broader dollar index held steady at 106.660 after reaching a one-year peak of 107.07 on Friday, and has risen by 1.6% over the past week, marking a positive trend over six of the last seven weeks.
The dollar’s recent performance is closely tied to a dramatic increase in U.S. 10-year Treasury yields, which have surged by 70 basis points since early October. This yield rise has underpinned a 5.4% increase in the U.S. dollar index.
**Assessing U.S. Economic Outlook and Foreign Policy Implications**
Analysts are now factoring in a more robust outlook for the dollar, with Capital Economics’ deputy chief markets economist, Jonas Goltermann, projecting an additional 5% appreciation by the end of 2025. This projection is based on expectations of economic strength in the U.S., potentially fueled by Trump’s proposed tariffs and a focus on domestic economic policies.
The market is closely watching who Trump will nominate for Treasury Secretary, with names like Howard Lutnick and Scott Bessent emerging as potential candidates. The market remains cautious, forecasting a 60% chance of a Federal Reserve rate cut by a quarter-point in December, a reduction from projections made a few weeks ago.
With several Fed officials scheduled to speak this week, traders anticipate they will maintain a careful stance regarding interest rate cuts. Additionally, European Central Bank members are expected to deliver dovish remarks in light of recent weak economic data and the potential impact of tariffs on European trade.
Commission traders should remain attentive to economic data releases this week, particularly from the UK, Japan, and Canada, all set to publish significant inflation reports. Furthermore, forthcoming manufacturing surveys will provide insights into market sentiment in the wake of the U.S. election results.
In summary, forex traders should monitor developments closely both in U.S. monetary policy and international reactions, considering how emerging economic indicators may influence global currency movements in the weeks ahead.
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