The Japanese Yen Fell On Wednesday. What About The Dollar?

The Yen plummeted against other major currencies today after the Bank of Japan’s meeting. The BOJ decided to maintain its ultra-low interest rates. This news disappointed traders who had hoped the bank would change its yield curve control policy.

Last month, the BOJ surprised markets by increasing its cap on the 10-year yield from 0.25% to 0.5%. That means the bank doubled the band it would permit below or above its target of zero. After that, investors speculated that the Bank of Japan might tweak further its yield curve control policy. Some even contemplated the possibility of the bank totally scraping it.

However, the BOJ kept its YCC targets intact at a two-day policy meeting, settling at -0.1% for short-term interest rates. It also didn’t change its guidance that enables the 10-year bond yield to move 50 basis points on either side of its target (0%).

Due to this news, the Japanese Yen traded in the red on Wednesday, suffering broad losses. Despite that, the currency rebounded later. Analysts expect the BOJ to tighten its policy in the coming months; such sentiment supported the struggling Yen.

Meanwhile, the greenback surged forward by as much as 2.7% to 131.58 yen earlier in the session. It exchanged hands higher by 1.1% at 129.475 yen at last.

How Are The Euro And Sterling Faring?

The common currency rallied by 1.7% versus the Japanese Yen to 140.65. At the same time, the British Pound soared by 1.6% to 159.85 yen. The Australian dollar gained 1.3%.

Nordea chief analyst Niels Christensen noted that the Bank of Japan was likely surprised by the reaction to its policy tweak last month. That’s probably the reason why it didn’t take new initiatives today. He also added that the bank is expecting higher inflation. That’s why he expects the BOJ to announce monetary tightening further down the road. However, that would likely start when a new BOJ governor takes the post in April.

Some traders thought that the BOJ would be forced to change, or even dismantle, YCC. They argued that the central bank couldn’t sustain the massive volume of buying bonds needed to defend the cap. But thus far, the BOJ stands firm.

Still, Japanese government bond yields plummeted by the most in two decades at one point on Wednesday, dropping sharply from the central bank’s 0.5% ceiling after the policymakers’ decision. The 10-year yield has often breached the ceiling during the past four sessions. Considering this news, Nordea’s Christensen stated that the downtrend in the USD/JPY pair is still intact.

What About The U.S. Dollar?

The dollar index plunged by 0.4% at 102.01 against the basket of six major currencies on Wednesday. On the other hand, the Sterling jumped to its highest level in more than a month. The country’s consumer price inflation dropped to a three-month low as core CPI failed to moderate, stranding at 6.3%. The Pound exchanged hands higher by 0.4% at $1.2341 at last.

Capital Economics senior U.K. economist Ruth Gregory noted that the small decline in CPI inflation and the unchanged core rate indicates that it’s too early for the Bank of England to declare victory in its fight against soaring inflation. But activity and wage growth ended last year a bit stronger than analysts expected. Thus, it’s doubtful that the BOE will call time on rate increases.

On Wednesday, the Euro skyrocketed by 0.6% to $1.0859 today. European Central Bank member Francois Villeroy de Galhau announced that it was too early to speculate about what the ECB would do at the March meeting. On Tuesday, some sources said the central bank could slow its pace of tightening further in March. However, after de Galhau’s statement, the Euro continued rallying.

In Asia, the Australian dollar climbed up by 0.4% to $0.7012. At the same time, the New Zealand dollar gained 0.7% to $0.6474, after earlier jumping to its highest level in a month at $0.6489.

Moreover, several E.M. Asian currencies traded in the green today. The rupiah rallied, gaining the most. But the baht declined after the BOJ maintained its ultra-easy monetary policy. Overall, the Thai baht shaved off 0.3%, while the Singapore dollar tumbled by 0.2%. The South Korean won, and Taiwan’s dollar remained mostly steady. However, the Indonesian rupiah soared by 0.7%, and the Philippine peso jumped by 0.5%.