SINGAPORE/LONDON: The yen tumbled on Tuesday after the Bank of Japan (BOJ) maintained its ultra-loose monetary policy, as expected, and more surprisingly did not signal a change was approaching, while the dollar drifted at the low end of its recent range.
The dollar jumped 1.3% on the yen, and the euro a touch more, each set for its biggest daily gain since end October, the BOJ’s last meeting when it also disappointed markets which had been expecting a hint policy was changing.
The greenback reached 144.95 yen, and the common currency 158.56.
Yen cedes some ground ahead of critical BOJ test
While the outcome was within market expectations, investors were on the lookout for signs on whether the dovish central bank might signal an eventual move away from negative interest rates.
“Everyone is trying to jump on the last trade of the year,” said Lee Hardman, senior currency analyst at MUFG.
“The message from the BOJ today is that they are still very cautious and there is no strong indication that they are getting close to raising rates.”
BOJ governor Kazuo Ueda BOJ told a press conference: “The prospects for (sustainably achieving our inflation target) are gradually heightening. But in terms of whether the threshold would be met, we’d prefer to look at more data.”
Elsewhere, the pound gained 0.47% to $1.2707 outperforming the euro which rose 0.16% to $1.0941.
That left the U.S. dollar index little changed at 102.52 , above last week’s four-week low of 101.75 but still down over 4% since early October, as the Fed, at its meeting last week, gave succour to investors expecting rate cuts in 2024.
Greenback decline
While Fed officials have pushed back against market expectations of how soon the Federal Open Market Committee (FOMC) could cut rates, those comments have done little to sway market pricing and stem the greenback’s decline.
Chicago Fed President Austan Goolsbee on Monday said the Fed was not pre-committing to cutting rates soon or swiftly, and the jump in market expectations that it will do so was at odds with how the U.S. central bank functions.
“It may take (the) PCE inflation or comments from FOMC Chair (Jerome) Powell to encourage market participants to delay their expectations for the start of the rate cut cycle,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.
A reading on the core Personal Consumption Expenditures (PCE) price index - the Fed’s preferred measure of underlying inflation - is due this week, and may provide clarity on whether inflation has slowed enough for the Fed to begin easing policy next year.
Elsewhere, the risk-sensitive Australian and New Zealand dollars sat around their highest in nearly five months, further beneficiaries of the softening dollar.
The Aussie rose 0.4% to $0.6733, having peaked at $0.6736 in the previous session, its highest since July 31.
The kiwi rose 0.35% to $0.6233.
Minutes from the Reserve Bank of Australia’s December policy meeting showed on Tuesday that the bank considered hiking rates, but decided there were enough encouraging signs on inflation to pause for more data.
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