Yen Resilient After Earthquake; Markets Brace for Fed Cut and RBA Decision

AsianForexHub Market Pulse

• The Yen showed resilience after a 7.5-magnitude earthquake in Japan, adding to a risk-off tone ahead of key central bank meetings.
• The Fed cut probability remains high at an implied 87% for the Dec. 9-10 meeting.
• The RBA is widely expected to keep interest rates on hold at its December policy decision.
• ECB commentary suggests the next move may be a hike, countering expectations of a cut.
• Bond investors are dialling back expectations of rate cuts in 2026 amid scepticism over the next Fed Chair’s dovishness.

The yen held steady in early Asian trading after a powerful 7.5-magnitude earthquake struck Japan’s northeast overnight, adding to a risk-off mood ahead of several policy decisions from central banks including the Federal Reserve.

TRADE THE GLOBAL RISKS: Understand how geopolitical events and central bank policy decisions impact safe-haven assets like the Yen and Gold.

JPY and USD Dynamics Amid Risk Aversion

Against the yen, the U.S. dollar was last flat at 155.885 yen after the quake, which prompted evacuation orders and tsunami warnings that were downgraded to advisories hours later. Tony Sycamore, market analyst at IG in Sydney, noted the initial shock of the quake “immediately revived memories of supply-chain fragility, potential insurance losses, and disruption to critical industrial output,” adding to the “risk-off tone” on markets.

The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, was last up 0.1% at 99.092, edging back from its highest level in a week.

Markets are preparing for a busy week of central bank decisions, anticipating a rate cut from the Federal Reserve at its meeting later this week. Fed funds futures are pricing an implied 87% probability of a 25-basis-point cut at the Fed’s December 9-10 policy meeting, according to the CME Group’s FedWatch tool. Nevertheless, markets believe policy easing from the U.S. central bank this week is a near-certainty, with attention turning to the outlook for the year ahead.

Bond investors are dialling back expectations of rate cuts in 2026 as scepticism mounts that Kevin Hassett, the frontrunner to succeed Jerome Powell, will prove as dovish as hoped by U.S. President Donald Trump. The yield on the U.S. 10-year Treasury bond was last trading at 4.168%, down 0.4 basis point from late U.S. levels, to retrace a three-day rise in yields. Analysts from ING wrote that “Markets made a dash for higher rates, and the new levels seem justified based on fundamentals”.

RBA and ECB Also in View

The Australian dollar was last flat at $0.6626 ahead of the Reserve Bank of Australia’s (RBA) December policy decision due at 0330 GMT, when it is widely expected to keep interest rates on hold.

The euro stabilised following a selloff in bund markets on Monday, after ECB board member Isabel Schnabel told Bloomberg News that the European Central Bank’s next move may be an interest rate hike, rather than a cut as some expect, but added that it will not happen in the near future. The European common currency was last trading flat at $1.164075.

The British pound was last steady at $1.332, while the New Zealand dollar was also unchanged at $0.57755. Bitcoin and ether were last down 0.8% apiece.

MASTER CENTRAL BANK DIVERGENCE: Gain clarity on the RBA’s decision and the shifting ECB outlook.