The Yen increased on Friday as traders reacted to remarks from Bank of Japan (BOJ) governor Kazuo Ueda, who aimed to ease ongoing concerns following an unexpected rate hike last month.
Meanwhile, markets prepared for a speech by Federal Reserve Chair Jerome Powell.
With all eyes on central bankers, Ueda was the first to address Japan's parliament, explaining the rate hike that had unsettled investors, Reuters reports.
In volatile trading on Friday, the Yen gained 0.38% to reach 145.75 per Dollar after Ueda reiterated his commitment to hiking rates if inflation continues to progress toward the 2% target, though he cautioned that financial markets remain unstable.
“His (Ueda) comments suggest that market turbulence won’t deter the BOJ from considering more rate hikes in the future even if the next move isn’t imminent,” stated Vasu Menon, managing director of investment strategy at OCBC.
“As long as the move in the Dollar-Yen is orderly and gradual, this should not rattle global markets as much as it did earlier this month.”
Japanese intervention and last month’s interest rate hike disrupted investors, leading them to unwind the popular carry trade, where traders borrow Yen to invest in higher-yielding assets, pulling the Japanese currency back from the 38-year lows hit last month.
The Bank of Japan's actions, combined with fears of a US recession, sparked a significant global selloff in early August, though most markets have since rebounded.
The Dollar index, measuring the greenback against six rivals, was down 0.11% at 101.35, after increasing 0.34% in the previous session. However, it remained near the year low of 100.92 hit on Wednesday. The index is on track for a fifth consecutive week of losses.
Federal Reserve Chair Jerome Powell is set to speak at a central bank event in Jackson Hole, Wyoming on Friday. Traders will be closely watching to assess when and by how much the Fed might reduce borrowing costs in the near future.
According to the CME FedWatch tool, markets are currently pricing in a 73.5% chance of the Federal Reserve cutting rates by 25 basis points at its September meeting, as traders have shifted away from expectations of a 50-basis point cut next month.
Elsewhere, the Euro rose 0.12% at the time of writing to $1.1126, not too far from the 13-month top hit on Wednesday, whilst the Pound was steady at $1.31065.
Markets are now anticipating more rate cuts from the Federal Reserve by the end of the year compared to those expected from the European Central Bank or the Bank of England.