The Turkish lira extended its decline against the yen, hitting a new low amid yen strength. The central bank’s policy rate announcement on 10 September is the focus this week, with the market widely expecting the rate to remain at 37.00%.
TRY/JPY began falling from around ¥3.301 last week, dropping to approximately ¥3.270 on 2 September and then plunging to around ¥3.193 on 3 September, close to its all-time low. The decline was largely driven by the sharp fall in USD/JPY combined with the lira’s weakness against the US dollar, while some observers said there had been no new selling catalyst specific to the lira. Turkey’s GDP at the end of August was up 2.3% year on year, while August CPI, released on 3 September, rose 31.51% year on year, although their impact on the market was limited.
The central bank statement and policy rate decision are the main points of focus this week. The market is said to have already priced in a strong expectation that the policy rate will be held at 37.00% at the 10 September announcement. Although CPI growth has slowed, the impact of higher crude oil prices on inflation remains a concern, and some observers believe conditions are still insufficient to justify resuming rate cuts. The key question will be whether the central bank statement retains its previous wording that it will maintain tight monetary policy until price stability is achieved through inflation expectations.
The outlook for next week points to a range of ¥3.175 to ¥3.300, with the pair generally expected to remain range-bound with a weak bias. Depending on the central bank’s decision, movements in the lira could accelerate again, and attention will also need to be paid to developments in major-country equity markets and crude oil prices.