Dollar Loses Traction Against Yen as Traders Reduce Fed Tightening Expectations

The USD/JPY notched up a seven-week low at 118.09 before finding a footing just ahead of the Sept-4 low at 118.30. The pair managed a rebound back to the north side of 119.0 in Tokyo trade, but this soon elapsed and the dollar drifted back to the high 118.0s. Much of the movement has been driven by the dollar. Support is now seen near the August lows at 116. Momentum has turned negative with the MACD (moving average convergence divergence) index generating a sell signal.

The Oct-30 BoJ policy meeting is starting to swing into view. Market opinion is divided about whether the central bank will expand its QQE program. BoJ chief Kuroda appeared to rule out both this and the option for negative interest rates while speaking at the last weekend’s IMF meeting in Peru.

In the U.S. yields have tumbled as traders have priced in a mere 30% chance that the Fed will increase interest rates by December. Fed fund futures have also only priced in a 5% chance of a change to monetary policy by October. Bond yields have declined below the 2% level, dropping down to 1.98%. This comes on the heels of Wednesday’s worse than expected retail sales and producer price report.

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