NEW YORK: The yen surged on Friday, adding to earlier gains on speculation the Bank of Japan (BOJ) will revise its ultra-loose monetary policy, while the dollar edged up against most other major currencies, rising off of a seven-month low.
The yen was up 1.06% against the greenback at 127.92 yen at 3:00 p.m. EST (2000 GMT). The move added to a 2.4% gain on Thursday after the Yomiuri newspaper said BOJ officials would review the side effects of the central bank’s yield curve control, or YCC, policy at their meeting next week.
The BOJ is an outlier in clinging to stimulus while most central banks globally are deep into rate-hiking campaigns. But signs of stickier inflation and a possible rise in Japan’s mostly stagnant wages have convinced some investors that YCC could be revised, or even abandoned, as early as next week, opening the door to a stronger yen.
“While a hike next week seems unlikely, it’s possible that the BOJ abandons YCC then in order to set up liftoff at the March or April meetings,” said Win Thin, head of global head of currency strategy at Brown Brothers Harriman. “This is the basic roadmap for tightening that’s been well-established by the Fed.” The yield on Japan’s benchmark 10-year government bonds breached the central bank’s new ceiling on Friday, adding to pressure for the yield control policy to be scrapped or revised.
The central bank said on Friday it would conduct additional outright bond purchases on Monday, ahead of its Jan. 17-18 rate setting meeting.
“Our estimated impact of further BoJ policy adjustment points to potential JPY appreciation of up to 2.7%, but we believe the risk is for a larger reaction – potentially double in size,” Barclays foreign exchange analysts said in a note to clients.
Elsewhere, better-than-expected economic data out of Germany and Britain suggested both countries could escape a recession — at least for now — but the news failed to provide a lasting boost to either the euro or sterling.
The euro was last down 0.2% against the dollar at $1.0828, easing off a fresh nine-month high earlier in the session. Sterling rose 0.12% to $1.22275.
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