The Fed’s policy decision later this month could be the catalyst for dollar/yen to test 140.00. San Francisco Fed President Mary Daly told Reuters on Wednesday that interest rates need to come down, although she didn’t say how quickly.
Japanese rates, meanwhile, should continue to rise but at a pace that ensures volatile markets do not harm businesses, Bank of Japan board member Hajime Takata said on Thursday.
On the face of it, Fed rate cuts and more BOJ tightening is a recipe for further yen strength. But a lot is already priced into the U.S. curve – over 100 basis points of easing this year and some 225 bps by the end of next year.
Japanese household spending data for July will be released on Friday, following figures on Thursday that showed real wages rose in July for a second month. Until June, inflation-adjusted wages had fallen every month for more than two years.
Strong wage and spending growth will keep the BOJ more inclined to raise rates again, in turn fueling further yen upside.
Many other Asian currencies have been on an impressive upswing in recent weeks too, clawing back most of their losses for the year or even moving into positive territory year-to-date.
The Asian calendar is light on Friday, with South Korean current account figures for August among the few highlights. Seven countries, including Japan, will release their latest FX reserves holdings, which at the last count totaled around $3 trillion.
