Dollar hits fresh high against yen amid US inflation data, BOJ meeting.

On Friday, the dollar surged to a new high against the yen, propelled in part by US inflation figures that met expectations, signaling a potential delay in Federal Reserve interest rate cuts until later this year.

The dollar’s ascent against the yen followed the Bank of Japan’s decision to maintain interest rates at its two-day policy meeting, despite signaling potential future rate increases. With the yen at multi-decade lows, market observers were watchful for signs of intervention from Japan to stabilize its currency.

The dollar reached 158.33 yen after briefly dipping to 154.97 earlier in the session, prompting speculation about potential intervention by the Bank of Japan, acting on behalf of the Ministry of Finance.

In the US, attention was focused on inflation data. The Personal Consumption Expenditures (PCE) price index rose 0.3 percent in March, in line with forecasts, with a 2.7 percent increase over the previous 12 months, slightly exceeding expectations.

Douglas Porter, chief economist at BMO, noted the persistent upward trend in short-term inflation measures tracked by the Fed and highlighted the market’s cautious reaction to the monthly rise, suggesting ongoing concerns about inflationary pressures.

Following the release of inflation data, US rate futures indicated a decreased likelihood of a Fed rate cut at the September meeting, with expectations shifting to December. The dollar index rose by 0.47 percent to 106.09.

The euro dipped slightly to $1.069, while against the yen, it reached a 16-year high of 169.29. Sterling slipped to $1.249 but recorded its largest weekly gain against the dollar since early March.

In Japan, the BOJ left its short-term interest rate target unchanged and made minor adjustments to its inflation forecast, signaling a cautious approach to future policy adjustments.

BOJ Governor Kazuo Ueda emphasized that while monetary policy does not directly target currency rates, exchange-rate volatility could impact the economy and prices, suggesting a potential policy adjustment in response to significant yen movements.

Investors are now awaiting next week’s Federal Open Market Committee meeting, with expectations of a hawkish stance from the Fed amid positive economic data. NatWest’s Brian Dangerfield suggested that while Fed Chair Jerome Powell may not rule out rate hikes, they are not the FOMC’s primary scenario.