NEW YORK: The yen whipsawed in its most volatile trading session in months on Friday after the Bank of Japan made its yield curve control policy more flexible, which investors took as a step towards an eventual shift in its massive stimulus programme.
After chopping and changing direction as traders digested the BOJ decision, the Japanese yen weakened 0.70% versus the greenback to 140.43 per dollar in early New York trading session.
The BOJ ended its two-day policy meeting on Friday, deciding to keep its short-term interest rate target at -0.1% and that for the 10-year government bond yield around 0%. But at the same time, the central bank said it would offer to buy 10-year Japanese government bonds (JGB) at 1.0% in fixed-rate operations, instead of the previous rate of 0.5%.
“The question is where the Bank of Japan is going? Is this the start of a rate hiking cycle or is this really just a tweak? And there’s no signal,” said Adam Button, chief currency analyst at ForexLive in Toronto.
“This may be the first step towards a credibility crisis for the Bank of Japan and that is really dangerous. They’re on the tightest of tightropes above the pit of alligators. This is the first wobble, and the Bank of Japan cannot afford to lose any of its credibility. I think that’s the big reason why we still see so much volatility.”
Inflation as measured by the personal consumption expenditures (PCE) price index increased 0.2% last month after edging up 0.1% in May, the Commerce Department said on Friday. In the 12 months through June, the PCE price index advanced 3.0%. That was the smallest annual gain since March 2021 and followed a 3.8% rise in May.
The dollar index fell 0.138% to 101.530, while the euro eased up 0.46% to $1.1023.
Sterling was last trading at $1.2854, up 0.48%.
In cryptocurrencies, bitcoin last rose 1.25% to $29,501.88 while Ethereum last rose 1.15% to $1,879.6.
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