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2026-02-16 20:36:28
[Yen Gives Back Some Gains as Weak GDP Data Weakens Rate Hike Expectations] ⑴ The yen fell 0.5% to $153.43 on Monday, partially erasing its nearly 3% weekly gain from the previous week, its biggest weekly gain in about 15 months. This followed a landslide victory for Prime Minister Sanae Takaichi's Liberal Democratic Party in the election, but the latest data showed that Japan's economy grew at an annualized rate of only 0.2% in the fourth quarter, far below expectations, highlighting the challenges facing the government. ⑵ Analysts at Danske Bank, specializing in foreign exchange and fixed income, stated that with the political dust settling somewhat after the election, the yen is becoming increasingly sensitive to data. Bank of Japan Governor Kazuo Ueda and the prime minister held their first meeting since the election on Monday, exchanging general views on economic and financial developments. The prime minister did not make any specific policy requests. ⑶ The market is currently pricing in a 20% probability of a rate hike at the Bank of Japan's March meeting, with institutional surveys predicting the central bank will wait until July to raise rates. The Bank of Japan raised its interest rate to a 30-year high of 0.75% in December, but this is still far below that of most major economies. (4) The US dollar index remained largely unchanged around 97, having fallen 0.8% last week due to lower-than-expected US January CPI. The market currently expects the Federal Reserve to cut interest rates by 62 basis points over the remainder of the year, equivalent to two 25-basis-point cuts plus a third cut with a roughly 50% probability. The first cut is most likely to occur in June, with an 80% probability. (5) The Swiss franc edged down to 0.7696 against the US dollar, after rising over 1% last week. Strategists at OCBC Bank pointed out that further appreciation of the Swiss franc could pose a downside risk to the Swiss National Bank's inflation forecasts, potentially challenging the central bank's recent tolerance for currency appreciation, although the threshold for returning to negative interest rates remains high. (6) The Australian dollar rose slightly by 0.2% to US$0.7083, slightly below the three-year high of US$0.71465 reached last week. The New Zealand dollar remained unchanged at US$0.6041; the Reserve Bank of New Zealand will hold a policy meeting on Wednesday, with the market widely expecting interest rates to remain unchanged.
