The yen lost some ground after the Bank of Japan on Friday kept interest rates ultra-low and forecast inflation to slow later this year, reiterating its dovish stance that runs counter to aggressive policies being taken by its peers. Worldwide.
As widely expected, the BOJ maintained its short-term interest rate target of -0.1 percent and a 0 percent cap on the 10-year bond yield set out in its yield curve control policy. performance (YCC).
The yen fell broadly following the decision, although it later pared some losses as traders turned their attention to BOJ Governor Kazuo Ueda’s post-meeting press conference later that day.
Against the euro, the Japanese currency rose marginally to 153.65, after falling to a fresh 15-year low of 153.925 per euro earlier in the session.
The US dollar was up about 0.1 percent at 140.42 yen.
“While the decision itself was not a huge surprise, some participants… expected a YCC tightening, and the financial market reacted with higher equity prices and a weaker yen,” said Hirofumi Suzuki, chief strategist at FX at SMBC.
“The focus will now be on whether the YCC framework will be tightened along with an upward revision to the inflation outlook at the July policy meeting.”
Elsewhere, the euro was headed for its best week in months after the European Central Bank (ECB) raised borrowing costs to a 22-year high and signaled more rate hikes were ahead.
That and a series of weak US economic data sent the dollar falling broadly as traders reduced their bets on how much US interest rates would have to rise.
The euro was near a one-month high of $1.09395, having risen more than 1 percent on Thursday following the rate hike and hawkish guidance from the ECB.
ECB President Christine Lagarde told a news conference that another rate hike was very likely in July and that the central bank still has “ground to go” to avoid high inflation.
“The biggest hawkish surprise was the upward revision of inflation forecasts for 2024 and especially for 2025,” Deutsche Bank economists said in a note.
“Our base expectation is a final increase of 25 bp in July at a terminal rate of 3.75%. The risks remain clearly on the upside”.
Sterling rose to a more than a year high of $1.2794 in early Asian trade and last bought $1.2776 as traders similarly raised bets that the Bank is likely to of England raise interest rates for the 13th successive meeting next week.
FED HAWKISHNESS CHALLENGED
The ECB’s monetary policy decision came a day after the US Federal Reserve kept interest rates unchanged, breaking a series of 10 consecutive rate hikes. However, the Fed also noted that borrowing costs may still need to rise by up to half a percentage point by the end of this year.
But a series of data releases on Thursday caused markets to challenge that view, as economic activity in the United States slows and inflation cools.
Production at US factories nearly came to a standstill in May as manufacturing struggled under the weight of higher interest rates, while US import prices similarly fell last month .
A separate report from the Labor Department showed initial claims for state unemployment benefits were unchanged at a seasonally adjusted 262,000 for the week ending June 10, above economists’ forecast of 249,000 claims.
However, US retail sales rose unexpectedly in May as consumers increased purchases of motor vehicles and construction materials.
The dollar fell on the data release and fell to a one-month low of 102.08 against a basket of currencies on Thursday. The dollar index last stood at 102.22.
In other currencies, the Australian dollar fell 0.17 percent to $0.6871, but was not far from the four-month high of $0.6893 hit in the previous session.
The kiwi fell 0.05 percent to $0.6232.