After Monday’s sharp selloff, the U.S. dollar climbed 0.3% against the yen to reach ¥156.00, retracing some of its losses from the prior session when it touched a two-week low. The recovery followed a robust sale of 10-year Japanese government bonds, which drew the strongest demand since September—a sign that investors may be finding renewed confidence in the Japanese debt market. Shoki Omori, chief desk strategist at Mizuho in Tokyo, said the auction outcome appeared to offer “a measure of reassurance” to participants who had been rattled by Ueda’s comments.
Those remarks, in which the BOJ governor suggested the central bank would evaluate the “pros and cons” of raising interest rates at its upcoming meeting, pushed Japanese two-year yields above 1% for the first time since 2008 and sparked a wave of selling across global assets—from stocks to bonds to cryptocurrencies.
Even with markets stabilizing, some analysts remain puzzled by the degree of Monday’s reaction. Michael Brown, senior research strategist at Pepperstone, noted that pricing in interest-rate swaps still reflects an 80% chance of a December hike. He argued that broader sentiment continues to be driven primarily by U.S. dollar dynamics, including shifting expectations around the Federal Reserve and speculation that Kevin Hassett may be tapped as the next Fed Chair. According to Brown, investors appear to be refocusing on a resilient U.S. economic outlook, even with a widely anticipated 25-basis-point rate cut expected at the Fed’s December 10 meeting.
Fresh pressure on the Fed came from Monday’s disappointing U.S. manufacturing data, which underscored the case for further easing. Fed funds futures now assign an 87% probability to a quarter-point rate cut—up sharply from 63% just a month earlier.
Inflation Back in View
The euro edged up 0.1% to $1.1620 after data showed inflation in the euro area ticked up to 2.2% in November from 2.1% in October. The modest increase keeps inflation essentially aligned with the European Central Bank’s 2% target. ECB policymaker Joachim Nagel emphasized that prices are now “practically” at the desired level. For some observers, the inflation report reinforces the notion that the ECB’s easing cycle may already be complete. Joshua Mahony, chief market analyst at Scope Markets, noted that despite speculation about another possible cut, the data suggest such a move is increasingly unlikely.
Sterling slipped 0.1% to $1.3207 after touching a one-month high on Monday. The dip came as the Bank of England announced a reduction in capital requirements for lenders—the first such move since the financial crisis—in an effort to stimulate lending and support the broader economy.
Meanwhile, bitcoin rebounded 2% to $88,255, distancing itself from the 10-day low touched during Monday's risk-off trading. The recovery aligned with a broader market stabilization following the global selloff.