Yen Soars Amid Expectations of Federal Reserve Rate Cut

The yen reached its highest level in over a year as market participants anticipated a significant rate cut by the Federal Reserve. Trading was thin due to holidays in Japan, China, and South Korea. The Fed's upcoming meeting, along with decisions from the BOJ and Bank of England, are key highlights.

The yen hit its highest levels in more than a year on Monday during thinly traded markets, as holidays in Japan, China, and South Korea limited activity. Market participants increasingly expected an oversized rate cut by the Federal Reserve later this week, stirring significant movements.

The dollar dropped 0.47% to 140.15 yen, further retreating from the 140.285 end-December low reached on Friday, marking levels unseen since July 2023. The Federal Reserve's Sept. 17-18 meeting, anticipated to result in an aggressive rate cut, has become the focal point of the week. Discussions also include policy decisions from the Bank of England and Bank of Japan on Thursday and Friday.

Investors have been selling the dollar for yen to capitalize on falling Treasury yields, which have dropped by 30 basis points in two weeks. Chris Weston from Pepperstone noted that this trend aligns with significant trading strategies, as Fed fund futures now show a 59% likelihood of a 50-basis point cut in September. The Bank of Japan's rate decision on Friday and upcoming political changes are also key factors to watch.

(With inputs from agencies.)