LONDON: The yen steadied Wednesday after its biggest daily gain versus the dollar in 24 years in the wake of a shock Bank of Japan tweak to monetary policy.
The BoJ move Tuesday to allow yields on certain government bonds to move in a wider band was seen as a precursor to a possible interest rate hike next year, finally bringing the central bank in line with others around the world.
National Australia Bank’s Ray Attrill said the “tweak has… been interpreted as putting the writing on the wall for a policy shift next year”.
The announcement resulted in Japan’s currency soaring to a four-month high against the dollar, with the US unit worth 130.58 yen.
A gain of 3.9 percent for the yen Tuesday was the biggest daily jump since 1998.
One dollar was worth 131.87 yen on Wednesday.
“It would be safe to assume that the BoJ shift will likely fuel further yen strength on repatriation flows as local bond yields rise,” noted Stephen Innes of SPI Asset Management.
The yen’s gain continued to weigh on share prices of Japanese exporters Wednesday but European stock markets made solid gains.
The BoJ move followed hikes to US and European interest rates last week and warnings by officials that tightening would likely go higher than initially expected.
A series of aggressive rate hikes this year is aimed at bringing decades-high inflation under control but higher borrowing costs have fanned speculation of a world recession.
European shares regain ground after brutal sell-off last week
Traders were keeping an eye also on China as it quickly reopens after almost three years of a zero-Covid policy of lockdowns and mass testing that hammered the world’s number two economy.
However, there is a worry about the immediate impact of a spike in infections, with hospitals struggling, pharmacy shelves being stripped bare and crematoriums overwhelmed.
“Though unspoken, it is well understood that policymakers have decided to accept a sizeable Covid wave,” said analyst Innes.
Key figures around 1145 GMT
Dollar/yen: UP at 131.87 yen from 131.69 yen on Tuesday
Euro/dollar: DOWN at $1.0614 from $1.0632
Pound/dollar: DOWN at $1.2096 from $1.2186
Euro/pound: UP at 87.76 pence from 87.21 pence
London - FTSE 100: UP 0.8 percent at 7,432.66 points
Frankfurt - DAX: UP 0.8 percent at 13,988.25
Paris - CAC 40: UP 1.1 percent at 6,518.66
EURO STOXX 50: UP 1.0 percent at 3,838.81
Tokyo - Nikkei 225: DOWN 0.7 percent at 26,387.72 (close)
Hong Kong - Hang Seng Index: UP 0.3 percent at 19,160.49 (close)
Shanghai - Composite: DOWN 0.2 percent at 3,068.41 (close)
New York - Dow: UP 0.3 percent at 32,849.74 (close)
Brent North Sea crude: UP 1.8 percent at $81.42 per barrel
West Texas Intermediate: UP 1.6 percent at $77.44 per barrel
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