Yen jumps on Ueda's remarks, dollar tentative ahead of US inflation print

The yen strengthened on Monday as comments from Bank of Japan Governor Kazuo Ueda stoked hopes that Japan could soon herald a new era away from negative rates, while the dollar was on the back foot ahead of this week's U.S. inflation reading. The Japanese currency rose nearly 0.8 per cent at one point to touch a session-high of 146.66 per dollar in early Asia trade, boosted by weekend comments from Ueda that the central bank could end its negative interest rate policy when achievement of its 2 per cent inflation target is in sight.

Ueda told the Yomiuri newspaper in an interview that the BOJ could have enough data by year-end to determine whether it can end negative rates.

The yen has come under immense pressure against the dollar as a result of growing interest rate differentials with the United States, since the Federal Reserve began its aggressive rate-hike cycle last year while the BOJ remains a dovish outlier.

"Ueda is laying the foundations for an exit from negative interest rates, and he is giving plenty of notice," said Matt Simpson, senior market analyst at City Index.

Elsewhere, the greenback edged broadly lower, distancing itself from its three-month highs struck against the euro and the British pound last week.

The euro rose 0.13 per cent to $1.0714, after having ended Friday with an eight-week losing streak. Sterling edged 0.16 per cent higher to $1.2486.

The dollar index, which capped last week with eight straight weeks of gains, its longest run since 2014, dipped slightly to 104.84.

U.S. inflation data for the month of August is due on Wednesday, with traders on the lookout for whether the world's largest economy is indeed on track for a "soft landing", and whether the Fed has further to go in raising rates.

The dollar, along with U.S. Treasury yields, had surged last week after a run of resilient economic data added to bets that further rate hikes from the Fed may be on the horizon.

"The overall global economy is not booming, but neither is it on the verge of recession, and the U.S. appears to be doing the best among the major economies," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

"The macro environment is not amenable to easy characterisation as it's neither risk-on nor risk-off. Or maybe it fits the divergent economic trajectories of the U.S. versus rest of the world, the so-called 'U.S. exceptionalism' mantra."

TURN OF TIDE?

In Asia, China's consumer prices returned to positive territory in August while factory-gate price declines slowed, data over the weekend showed, pointing to easing deflationary pressures amid signs of stabilisation in the economy.

The consumer price index (CPI) rose 0.1 per cent in August from a year earlier, slower than the median estimate for a 0.2% increase in a Reuters poll, while the producer price index (PPI) fell 3.0 per cent from a year earlier, in line with expectations.

"Historically, we do not see China's inflation print negative numbers for very long, although I thought we might at least get a few more deflationary figures than the single one served," said City Index's Simpson.

The offshore yuan gained roughly 0.1 per cent to 7.3587 per dollar, though was still not far off from Friday's 10-month low of 7.3678 per dollar as sentiment over China's faltering economic recovery remained fragile.

The Australian dollar , often used as a liquid proxy for the yuan, rose 0.29 per cent to $0.6397, while the New Zealand dollar edged 0.28% higher to $0.5900.