Photo/Illutration Bank of Japan Governor Kazuo Ueda meets reporters at the central bank's head office in Tokyo's Chuo Ward on Oct. 31, 2023. (Asahi Shimbun file photo)

NEW YORK--The Japanese yen weakened against the dollar on Monday for a second straight day, giving back most of a rally last week on expectations of less dovish monetary policy, and as investors awaited U.S. inflation data and three major central bank meetings.

The Japanese currency surged on Thursday after Bank of Japan (BOJ) Governor Kazuo Ueda, who on the same day met with Prime Minister Fumio Kishida, said the central bank had several options on which interest rates to target once it pulls short-term borrowing costs out of negative territory. Bloomberg, however, reported on Monday that BOJ officials have not yet enough evidence that wage growth is enough to justify ending its ultra-loose monetary policy this month.

“This is the right reaction. Ueda’s words last week weren’t actually any sort of concrete statement that they were going to end that negative interest rate,” said Helen Given, FX trader, at Monex USA in Washington.

The dollar rose as high as 146.58 yen and was last at 146.14 yen, up 0.85% on the day. The yen has given up almost all of its rally on Thursday, when it reached 141.6 yen against the dollar. The dollar rose 0.13% against a basket of currencies to 104.08. The euro was unchanged on the day at $1.0762, close to Friday’s 24-day low of $1.0724. Sterling gained 0.06% to $1.2555, after hitting a 15-day low of $1.2504 on Friday.

Traders will watch U.S. consumer price inflation data on Tuesday for clues on the likely path of Federal Reserve policy. It is expected to show that headline inflation was unchanged in November, for an annual increase of 3.1%, down from 3.2% in October. A New York Fed survey showed that the path U.S. consumers expect inflation to take over the next year softened in November to the lowest level in more than two years, amid retreating projections of higher gasoline and rental costs.

The dollar jumped on Friday after jobs growth in November beat economists’ forecasts, pushing back expectations for the first Fed rate cut to May, from March. Central banks will then take the markets’ focus, with Fed officials due to give their updated economic and interest rate projections at the conclusion of the U.S. central bank’s two-day meeting on Wednesday.

Fed Chairman Jerome Powell is also likely to reduce expectations of rate cuts being likely in the first half of the year. “His speeches, in particular since the last cycle, have focused on that the remaining risk is going to be to the upside - so he’s still biased towards more tightening rather than this loosening that markets are starting to expect,” said Given.

The European Central Bank and the Bank of England will also set rates on Thursday.

Meanwhile, China’s yuan fell to a three-week low after data showed deflation in the country worsened in November. Data over the weekend showed China’s consumer prices fell at the fastest rate in three years in November while factory-gate deflation deepened, indicating increasing deflationary pressure as weak domestic demand casts doubt over the country’s economic recovery.

The yuan hit a three-week low in both the onshore and offshore markets, with the former last at 7.1750 per dollar. The Australian dollar, often used as a liquid proxy for the yuan, fell 0.17% to $0.6566. The dollar gained 0.39% against the Norwegian krone to 10.95, after earlier reaching 10.99, the highest since Nov. 14.

Analysts are divided over whether Norway’s central bank will continue to raise interest rates this week, with a narrow majority predicting an unchanged cost of borrowing, a Reuters poll showed on Monday. In cryptocurrencies, Bitcoin tumbled more than 7% to $40,542.

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