Yen firms, underpinned by BOJ policy tweak; US dollar steady

THE yen was a touch firmer on Thursday (Dec 22), edging back towards a four-month peak against the US dollar hit this week after an unexpected tweak to the Bank of Japan’s (BOJ) bond yield controls spurred bullish yen bets.

The yen rose about 0.3 per cent to 132.08 per US dollar. It had surged to a four-month high of 130.58 on Tuesday after the BOJ decided to allow the 10-year bond yield to move 50 basis points either side of its 0 per cent target, wider than the previous 25 basis point band.

The greenback, which moved broadly lower after rising 0.6 per cent against the yen in the previous session, had failed to meaningfully recoup the 3.8 per cent slump that followed Tuesday’s news.

“The yen has significant room to appreciate from here...,” said Michael Brown, analyst at Trader X.

“I think US dollar-yen has scope to move back towards the mid-120s, around 125 or 126, as the BOJ becomes more hawkish, and also as markets continue to doubt what we’re hearing from the Fed,” Brown added.

Against the euro, the yen steadied at 140.24, while trading at 159.10 per pound. The yen was close to its strongest against both currencies since late September.

The US dollar was steady ahead of key US data releases, including the final reading of third quarter GDP and weekly jobless claims data that should give further clues on the underlying strength of the US economy after strong consumer confidence data on Wednesday.

“The consumer confidence figures suggested the economy is holding up in the face of higher interest rates,” said Equiti Capital head macro economist Stuart Cole.

“We are seeing hopes rise that we may yet get the much hoped for soft US landing. That is good for risk sentiment,” Cole added.

The US dollar index, which measures it against a basket of six currencies including the yen, earlier fell as much as 0.5 per cent to 103.75, its lowest level in a week. It was last little changed at 104.20.

The euro was 0.1 per cent higher at US$1.0617 as European Central Bank vice-president Luis de Guindos said they may raise interest rates at the current pace for a “period of time” to curb inflation.

Sterling dipped 0.3 per cent to US$1.2063, adding to Wednesday’s 0.85 per cent fall as data indicated that British economy is on the verge of a recession.

Britain’s economy contracted in the third quarter by a little more than first estimated and business investment performed poorly, the Office for National Statistics said on Thursday.

“The UK outlook remains pretty dismal and there are no clear reasons why you would necessarily want to be long of sterling,” Equiti Capital’s Cole said, although he expected some support as the Bank of England further tightens policy to keep inflation in check.

“I can easily see sterling being somewhat of a backwater currency going forward, with little reason to buy or sell it, unless of course we get some unexpected event.” REUTERS