Yen slides, dollar gains as BOJ seen maintaining loose policy

NEW YORK: The yen dropped against the dollar on Friday after Reuters reported the Bank of Japan (BoJ) is leaning toward keeping its key yield control policy unchanged next week, ahead of a busy week of central bank meetings that includes the US and Europe.

BoJ policymakers prefer to scrutinize more data to ensure wages and inflation keep rising before changing the policy, five sources familiar with the matter said. The report added there was no consensus within the central bank and the decision could still be a close call.

“All expectations are for them to keep yield curve control as is and no changes to rates, but maybe a little upgrade on their inflation outlook,” said Edward Moya, senior market analyst at OANDA in New York.

However, “the chances that we could get a surprise should remain on the table,” Moya added. “The BOJ is potentially going to be a major market-moving event because time’s running out on the BOJ to really set up a policy shift.”

With inflation having exceeded the BoJ’s target for more than a year, markets have been simmering with speculation the central bank could tweak yield curve control as early as the July 27-28 meeting.

Data earlier on Friday showed Japan’s core inflation rose to 3.3%, matching a median market forecast but remaining ahead of the BoJ’s 2% target.

The dollar gained 1.24% to 141.81 yen, after earlier reaching 141.95, the highest since July 10. It is trading just below the 145.07 level reached on June 30, which was the highest since Nov. 10.

The greenback is on track for its best weekly percentage gain against the Japanese currency since October at 2.22%.

Kenneth Broux, head of corporate research for FX and rates at Societe Generale, said the sharp move in the yen on Friday might prompt Japan’s finance ministry to make further public comments to try to support the currency.

The dollar index - which tracks the greenback against six major peers - rose 0.30% to 101.06. The index was on track for a 1.14% weekly gain, its biggest rise in two months.

The euro fell 0.05% against the dollar to $1.1123.

The pound fell for a sixth day versus the dollar - its longest stretch of daily losses since last September - and was last down 0.07% at $1.2859.

The pound is on track for a 1.75% weekly fall, its largest since early February.