BOJ tweak stirs yen volatility; US dollar stays down after economic data
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THE yen had its most volatile trading session in months on Friday (Jul 28) after the Bank of Japan (BOJ) tweaked its yield curve control policy, leaving investors wondering if an eventual shift in its massive stimulus programme is approaching.
Whipsawing as traders digested the decision, the Japanese yen weakened 1.13 per cent versus the greenback and was last at 141.05 per dollar in the New York afternoon session. The BOJ is offering to buy 10-year Japanese government bonds (JGB) at 1.0 per cent and is keeping its short-term interest rate at minus 0.1 per cent and the 10-year government bond yield around 0 per cent.
“This is a first step in moving to a tightening in overall monetary policy settings,” said Karl Schamotta, chief market strategist, at Corpay in Toronto. He said the prospect of an increase in yields in Japan is weighing on global yields by suggesting that Japanese investors might keep more money at home, instead of redeploying it into government bond markets overseas.
Meanwhile, the dollar fell against a basket of its major peers as investors largely shrugged off new data showing inflation slowing as they continue to sort through multiple central bank decisions to understand the outlook for monetary policy.
US annual inflation in June increased by the smallest amount in more than two years, with underlying price pressures moderating. If the trend continues, it could push the Federal Reserve closer to ending its fastest interest rate hiking cycle since the 1980s.
Inflation slowed considerably in the 12 months to June, with the personal consumption expenditures index advancing 3.0 per cent, the smallest annual gain since March 2021, the Commerce Department said on Friday. The dollar index fell 0.049 per cent to 101.630, while the euro rose 0.42 per cent to US$1.1019.
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Sterling was last trading at US$1.2854, up 0.48 per cent. REUTERS
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