Dollar Dominance: Yen Struggles as Central Bank Policies Dictate Global Currency Trends

The Japanese yen experiences slight gains but remains under pressure compared to the dominating U.S. dollar, which benefits from rising yields and pro-growth policies. The Bank of Japan faces challenges balancing rate hikes against maintaining currency stability, with potential interventions on the horizon as inflation persists.

The Japanese yen saw a modest rise from five-month lows on Monday, although it continues to lag behind a dominant U.S. dollar, which holds sway amid global currency developments. This marked the end of a year marked by diverging central bank strategies.

The dollar index, reflecting the greenback's strength against six major currencies, dipped slightly by 0.1% to 107.86. It remains near a yearly peak, supported by rising U.S. yields and expectations of prolonged elevated U.S. rates. In December alone, the index gained 2%, contributing to an overall 6.35% rise for the year.

Despite widespread forecasts of a weaker dollar in 2024, market participants anticipate U.S. economic policies under President-elect Trump, such as tax cuts and regulatory changes, will bolster growth and inflation, sustaining elevated yields. This scenario has pressured the yen, which strengthened slightly to 157.55 per dollar, amid concerns over potential Japanese governmental intervention to stabilize its currency.

(With inputs from agencies.)