FOREX-Yen extends losing streak as traders question BOJ's rate-hike pace

The yen was on track for a third straight day of losses versus the dollar on Tuesday, as traders weighed whether the Bank of Japan would raise rates quickly enough to close the ‌gap with global peers. Despite the BOJ's rate hike last week, the Japanese currency has retreated from a seven-month high it touched earlier in September. Investors view the dissent from two policymakers, who pushed for a more cautious pace, as a warning that additional hikes may be harder to implement.

"Whether the central bank ‌quickens its pace remains contingent on how events unfold. Questions of where neutral and terminal policy rates sit are still open for debate," said ‌Naomi Fink, chief global strategist at Amova Asset Management. The yen slipped 0.22% to 157.70 against the dollar, though declines were kept in check partly because of a holiday in Japan and the prospect of intervention.

MULTIPLE FACTORS WEIGH ON YEN The currency has also come under pressure because the Federal Reserve and other global central banks have increased rates and markets price in further ⁠hikes this ​year.

Taken together, the developments illustrate that ⁠multiple forces are pressuring the yen, making traders quick to seize any opportunity to sell the currency even as officials signal support. "Japan may step in again, but intervention is a warning shot, ⁠not a cure. Traders do not believe the tightening cycle will move fast enough to challenge the dollar's yield advantage," said Hassan Fawaz, chairman and founder of brokerage firm ​GivTrade.

Markets price about a 30% chance that the BOJ hikes its benchmark short-term rate to 1.5% in October and a roughly 53% chance ⁠that the Fed will lift its funds rate window by 25 basis points to 4% to 4.25%. Elsewhere, the euro edged 0.1% lower to $1.1453, its lowest since late July, and sterling dipped ⁠0.03% to $1.3365.

"European ​Central Bank officials have so far maintained a notably hawkish tone, keeping an October hike firmly on the table," ING's FX strategist Francesco Pesole wrote. "Even so, investors appear increasingly willing to embrace the opposite narrative, pointing to further near-term downside pressure on the euro/dollar."

Last week, ECB President Christine Lagarde ⁠reacted against investor bets for aggressive rate increases, saying a measured response from the central bank would be enough to contain inflation. Brent crude futures rose 1.1% ⁠to $101.43 on Tuesday, but have eased from ⁠a four-month high they hit earlier in September.

As Europe remains heavily dependent on oil imports, fluctuations in crude prices are likely to factor into interest rate considerations. The dollar index, which tracks the US currency against six major peers, ‌was 0.09% higher at ‌100.52.