NEW YORK: The US dollar fell to a near one-month low against the yen on Wednesday after the Bank of Japan made a policy shift in its bid to stimulate the country's stagnating economy that included the addition of a long-term interest rate target.
Investors took a skeptical stance on the BOJ's ability to generate inflation with other new measures such as scrapping its focus on a monetary base while also committing to reaching its elusive 2 percent inflation target.
The US Federal Reserve is expected to keep interest rates unchanged in a range of 0.25 percent to 0.50 percent when it announces its policy stance at 2 p.m. EST (1800 GMT). Investors will look for any hints of a rate increase later this year.
"The Bank of Japan effectively admitted the error of their ways by saying that their attempt at negative interest rates and standard quantitative easing was not working," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management.
The BOJ maintained the 0.1 percent negative interest rate for some of the excess reserves that financial institutions park with the central bank. But it abandoned its base money target and instead set a "yield curve control," under which it will buy long-term government bonds to keep 10-year bond yields around their current zero percent.
The dollar fell more than 1 percent against the yen to 100.56 yen in North American trading, its lowest since Aug. 26 when US gross domestic product numbers revealed the United States' economy was growing slower than anticipated.
The greenback's drop is a reversal from earlier trade when it was up more than 1 percent to a one-week high of 102.79 yen.
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