Yen advances on BOJ policy tweak speculation, dollar steady
yen strengthened on Friday as speculation mounts that the Bank of Japan could tweak its yield curve control policy later in the day, while the dollar held on to its overnight gains after better-than-expected U.S. economic data. The BOJ is widely expected to keep ultra-low interest rates later on Friday but investors are eyeing the possibility it makes minor tweaks to extend the lifespan of its yield control policy.
The Nikkei newspaper reported the central bank will maintain its 0.5% cap for the 10-year government bond yield, but discuss allowing long-term interest rates to rise above that level by a certain degree. The Japanese yen strengthened as much as 0.55% to 138.72 per dollar before losing steam to trade at 139.37 on Friday. The currency is up about 2% against the dollar this week.
«The Nikkei report really just came out of the blue,» said Carol Kong, a currency strategist at Commonwealth Bank of Australia, noting that given the sharp sell off in the dollar/yen an announcement from the BOJ will unlikely further weigh on the currency pair. «I think markets will also pay close attention to what the rationale is,» she said. «It will probably be about improving the bond market functioning like the previous move in December.» The BOJ last December stunned the market by widening the yield band and allowing the 10-year yield to rise by up to 0.5%.
The BOJ decision caps a busy week for global central banks. The story so far has been of policymakers sticking to expectations with the Federal Reserve and the European Central Bank hiking by 25 basis point each earlier in the week. However, the ECB raised the possibility of a pause in September as inflation pressures show tentative signs of easing and recession worries mount.
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