The yen yesterday slipped after comments from the Bank of Japan’s (BOJ) chief quelled speculation that it would follow other central banks in scaling back monetary stimulus, while the US dollar recovered losses after the US government’s shutdown ended.
The yen weakened to ￥111.15 against the dollar, down 0.2 percent from late US levels, after BOJ Governor Haruhiko Kuroda reiterated his commitment to strong monetary easing, saying that there is still some distance to meeting its inflation target.
That helped the Japanese currency reverse its earlier gains to ￥110.55 per dollar, which put it within sight of last week’s four-month low of ￥110.19, after the central bank maintained its policy and its economic and price projections.
The comments came after US senators struck a deal to lift a three-day government shutdown, which helped the dollar recover earlier losses.
However, the greenback remained mired near a three-year low against a basket of currencies on lingering concerns about its yield advantage being chipped away.
The BOJ said risks to prices are still tilted to the downside, although its slight change to its assessment on inflation expectations from “weak” to “flat” was enough to trigger a bout of yen buying.
“I don’t see anything in today’s announcement that suggests a change in the BOJ’s stance. Rather today’s price action talks more about how the market is preoccupied with the idea that the BOJ will adjust its monetary policy at some stage in the future,” Bank of Tokyo-Mitsubishi UFJ Ltd chief foreign exchange analyst Minori Uchida said.
The yen has gained after the cental bank trimmed its buying of long-dated government bonds earlier this month, sparking speculation of an eventual exit from its large stimulus.
The US dollar index against a basket of major currencies stood at 90.49, not far off its three-year low of 90.104 touched on Wednesday last week.
The US House of Representatives on Monday passed a short-term measure to fund the federal government through Feb. 8 after it won enough support in the US Senate.
Still, a boost from the deal did not last long, partly because the measure secured funding for only a little more than two weeks, with Republicans and Democrats still at loggerheads on many issues.
One reason often cited by traders for the dollar’s climbdown is that its relative yield attraction is at risk as the world’s major central banks are seen winding up their stimulus.
That would change the interest rate dynamics of the past few years, when the US Federal Reserve was the only central bank raising rates.
The euro stood at US$1.2277, consolidating its rally after having hit a three-year high of US$1.2323 on Wednesday last week.
Expectations that the European Central Bank might withdraw its stimulus gained momentum earlier this month after the accounts of its last policy meeting showed it could shift its policy communication early this year.
However, sources said the European Central Bank is unlikely to ditch a pledge to keep buying bonds at its meeting tomorrow.
The British pound hit its post-Brexit referendum high of US$1.4005, helped by optimism that Britain will reach a favorable divorce deal with the EU.
French President Emmanuel Macron on Saturday said Britain would be able to have a bespoke deal with the EU after Brexit, one of British Prime Minister Theresa May’s objectives.
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