The yen was headed for its longest losing streak against the dollar since June as traders bet the Bank of Japan would refrain from raising interest rates next week.
The Japanese currency extended its losses on Friday, falling 0.6% to 153.48 against the dollar, its lowest level since November 26. It has fallen for the fifth day in a row and is also heading for its worst week in more than two months.
Bloomberg reported earlier this week that policymakers at the Bank of Japan see little cost in waiting until January or later to raise interest rates because there is limited risk that inflation will exceed the ceiling. The report said they are open to raising interest rates next week depending on economic data and market developments.
Financial markets scaled back their bets on a rate hike this month following the report, and are now assigning a 16% probability to that outcome. A week ago, the chance of a rate hike was 64%.
The Bank of Japan’s quarterly tankan report released on Friday showed that confidence among major companies in Japan remains optimistic, but the data did not move interest rate expectations.
“We believe the risks are leaning towards a weaker yen,” said Adarsh Sinha, FX and interest rates strategist at Bank of America. “The Bank of Japan is in a wait-and-see mode as it assesses future US economic policy.”
