WASHINGTON – The U.S. dollar surged in Tokyo on Thursday to a 10-month high in the upper ¥117 range after the U.S. Federal Reserve suggested a faster pace for rate hikes next year while raising its interest rates for the first time in a year.
The dollar fetched ¥117.62-63 in Tokyo as of 5 p.m., compared with ¥114.98-115.00 the day before.
After soaring to the upper ¥117 zone around noon, the dollar lost steam somewhat and retreated to the mid-¥117 range. But it made a comeback amid growing speculation that the U.S.-Japan interest rate gap will widen after the Fed said its policymakers expect three rate hikes in 2017, up from two such increases projected in September, dealers said.
Meanwhile, Tokyo stocks reacted positively to the Fed’s move, with the benchmark Nikkei-225 stock index rising over the ¥19,400 threshold at one point, reaching this year’s highest point. It closed the day’s trading at the Tokyo Stock Exchange at ¥19,273.79, up 0.1 percent.
Federal Reserve Chair Janet Yellen’s action Wednesday in Washington signaled the central bank’s belief that the U.S. economy has improved over the past year after a rough start to 2016 and can withstand slightly higher borrowing rates.
The central bank said in a statement after its latest policy meeting that it will raise its benchmark rate by a quarter-point to a still-low range of 0.5 percent to 0.75 percent. The Fed last raised the rate in December 2015 from a record low near zero set during the 2008 financial crisis.
The Fed’s move, only the second rate hike in the past decade, came on a unanimous 10-0 vote. The Fed also released an updated economic forecast that showed modest changes to its outlook for economic growth, unemployment and inflation, mainly to take account of a stronger economy and a drop in the unemployment rate for November to a nine-year low of 4.6 percent.
After the Fed’s announcement, several major banks announced that they were raising their prime lending rate from 3.50 percent to 3.75 percent. The prime rate is a benchmark for some types of consumer loans such as home equity loans. BB&T and Citigroup were among the banks to announce the increase.
Mortgage rates have been surging since Donald Trump’s presidential victory last month on expectations that his program of deregulation, tax cuts and increased spending on infrastructure would accelerate economic growth and inflation.
At a news conference, Yellen said she didn’t think the economy needed stimulus from Trump’s spending plan — the kind of fiscal support that both Yellen and her Fed predecessor, Ben Bernanke, had called for in the past.
Yellen said such policies would be unlikely to maximize employment, since the unemployment rate is now slightly below the Fed’s own long-term target.
“I believe my predecessor and I called for fiscal stimulus when the unemployment rate was substantially higher than it is now,” she said.
The Fed chair stressed that she was not providing advice or guidance to the incoming Trump administration. She also downplayed any expectations that Trump’s economic program could lead to faster rate hikes as a result of higher growth and inflation.
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