Yen jumps, US dollar steady ahead of US inflation data

THE yen got a boost on Thursday (Jan 12) on expectations the Bank of Japan (BOJ) will review the side effects of its monetary easing, while the US dollar held near a seven-month low against the euro ahead of US inflation data later in the day.

The yen rose 1.3 per cent to a session high of 130.80 per US dollar following a Yomiuri report that the BOJ will review the side effects of its monetary easing at next week’s policy meeting and may take additional steps to correct distortions in the yield curve.

The news follows the BOJ’s surprise tweak in December to its bond yield curve control, though the move has failed to address distortions caused in the bond market by the central bank’s massive bond buying.

“The report overnight emphasises that next week’s Bank of Japan meeting is live for a potential policy change,” said Chris Turner, global head of markets at ING in London.

“You could start to see the normalisation of monetary, policy which would be a huge step for Japan (and) a very positive tailwind for the yen,” Turner added.

Elsewhere, the US dollar was a little changed ahead of closely watched US inflation data, which could provide more clarity on how quickly price pressures are easing in the world’s largest economy and the impact on the Federal Reserve’s rate hike path.

The US dollar index was last down 0.06 per cent to 103.04, not far off its seven-month low of 102.93 hit earlier in the week.

“There is near-term upside risk to the US dollar for the simple reason it has sold off a lot since last Friday’s non-farm payrolls report,” said Axel Rudolph, financial analyst at IG.

“Traders who have been short since Friday have had a good trade, so even if consumer price index (figures are) in line with expectations, I think there will be some short-term US dollar strength as they exit their short positions,” Rudolph added.

Economists polled by Reuters expect December core inflation to moderate to 5.7 per cent from 6.0 per cent on an annual basis, with headline prices seen 6.5 per cent higher than a year earlier.

Sterling rose 0.1 per cent to US$1.2160, while the euro was little changed at US$1.0763, after rising to a seven-month peak of US$1.07765 in the previous session.

The euro continues to find support from hawkish messaging from European Central Bank (ECB) officials, with four on Wednesday calling for additional rate increases.

“Our expectations are for another 125 basis points of rate hikes from the ECB and stay there until 2024,” ING’s Turner said.

“Our core views for Fed policy versus ECB policy would be for a stronger euro-US dollar through the year.”

The Aussie slipped 0.1 per cent to US$0.6901, while the kiwi fell 0.2 per cent to US$0.6356.

Data released on Thursday showed Australia’s trade surplus unexpectedly widened in November and came in well above forecasts.

China’s offshore yuan last stood at 6.7609 per US dollar, after hitting a five-month high of 6.7505 per US dollar earlier in the session, on optimism that China’s economy is on the road to recovery.

Meanwhile, Bitcoin rose for the fifth consecutive day, hitting its highest level in a month at US$18,370. REUTERS