Japanese yen weakens against dollar fearing Fed's super-charged tightening policy

On Friday, the Japanese yen experienced the biggest decline against a strengthening U.S. dollar as a two-day rise in stocks acknowledged market expectations that the Fed will need to take additional action to keep inflation under control. That realization came after a number of Federal Reserve officials cautioned investors not to be overconfident following this week's minor easing in inflation numbers in speeches and statements.

The most recent example was San Francisco Fed President Mary Daly, who stated on Thursday that a rate increase of 50 basis points in September "makes sense" in light of recent economic data, especially data on inflation, but she is willing to raise the rate if necessary.

Thursday saw a decline in the Nasdaq and S&P 500 amid further indications of slowing inflation. The euro fell to $1.0311 while the dollar index increased by 0.1% to 105.210. The Japanese yen lost 0.12% to 133.19 per dollar, and the last known price of sterling was $1.2184, down 0.23% from the previous day. The euro increased 0.05% to 137.340 yen. Even the New Zealand dollar, which is expected to have a significant rate increase next week, decreased 0.16% to $0.643 against the US dollar.

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According to data released on Thursday, U.S. producer prices (PPI) unexpectedly declined in July due to a decrease in the price of energy items. That came after the shocking report on Wednesday that the consumer price index (CPI) was unchanged in July as a result of a decline in gasoline costs.

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While such information sparked a brief relief bounce in markets concerned about the Fed's accelerated tightening course, it was fleeting. The tech-heavy Nasdaq has just recovered from mid-June lows, but it is still down nearly 18% for the year. Along with the 225 basis points of Fed rate increases since March, the dollar index has continued to strengthen, up 10% so far this year. From Wednesday's top of 135.30 against the yen, it had dropped as low as 131.74 overnight, a one-week low. On Friday, it was back at 133.245.

(with inputs from agencies)