Yen Surges After U.S. Presidential Debate and BOJ Commentary

The yen rose to its highest in 2023 against the dollar after the U.S. presidential debate between Kamala Harris and Donald Trump. Bank of Japan member Junko Nakagawa's speech also bolstered the yen. Traders await a U.S. inflation report that may guide the Federal Reserve's rate cut decision next week.

The yen hit its highest level of the year against the dollar on Wednesday following the U.S. presidential debate between Kamala Harris and Donald Trump. The safe-haven currency received additional support from Bank of Japan board member Junko Nakagawa's remarks on potential interest rate hikes.

Meanwhile, traders were anxious ahead of a key U.S. inflation report that could provide signals on the Federal Reserve's rate-cut decisions. The dollar dropped 0.68% to 141.50 yen, its lowest level since January 2, before stabilizing marginally.

Long-term U.S. Treasury yields, which influence the dollar-yen pair, fell to 3.625% for the first time since June 2023. Shoki Omori of Mizuho Securities noted that Harris's clear articulation of her economic policies during the debate offered some relief to the market, weakening the dollar further.

Investors are generally optimistic about the dollar strengthening if Trump wins, due to potential tariffs and increased fiscal spending. Conversely, Nakagawa's comments about Japan's low real rates and potential policy tightening lent strength to the yen.

The Federal Reserve is expected to ease policy on September 18, its first move in over four years. There's a 67% chance of a 25-basis point cut, with a slim possibility of a 50-basis point reduction, according to Fed funds futures.

Elsewhere, the euro and sterling experienced slight gains. The dollar index, measuring against six major currencies, slipped 0.18% after peaking at a one-week high. Harris's debate performance boosted her odds of winning, according to PredictIt. Rob Carnell from ING observed a market lean towards Harris post-debate.

(With inputs from agencies.)