Dollar Falls against Japanese Yen on BOJ Speculation

The US dollar fell further to a 6-week low against the Japanese yen after the Bank of Japan (BOJ) trimmed the size of its bond purchases in the previous session, putting speculation that it would ease its massive monetary stimulus

The dollar slid 0.64% to 111.94, its lowest level since December 1, after Tuesday’s 0.5% drop when BOJ made a slight tweak to its policy.

“The BOJ’s move reminded traders of the fact that major central banks are willing to normalize their monetary policy,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“I think this unwanted strengthening of the yen will make the BOJ more cautious in going forward, when they want to move toward normalization,” he said.

The yen was also higher against the euro, with EUR/JPY dropped 0.63% to 133.62.

“Japanese (bond) yields have been rising and this has been reinforcing the move on the yen,” Thu Lan Nguyen, FX strategist at Commerzbank.

However, he said that the market expectations of an early end to an expansionary BOJ policy “premature” because the bank can defend its 10-year yield target without buying so many bonds, and because inflation pressures in Japan remain low.

Investors were still fixated on the BOJ’s decision to trim its purchases of long-term bonds, which has been perceived by some analysts as a minor tapering of its large quantitative easing programme, said Derek Halpenny, European head of global markets research at MUFG.

One particular situation was when Japan’s benchmark 10-year bond yield rallied on Wednesday by 2 basis points to 0.085%, its highest level in a month, said Halpenny.

The dollar's fall reflects the greenback’s vulnerability to other central banks’ moves towards normalizing monetary policy. 2 US interest hikes this year were priced in, but the market has only recently started to price in tightening movies by other central banks.

Measuring the greenback’s strength against a trade-weighted basket of 6 major currencies, the US dollar index dropped 0.1% to 92.14 from Tuesday’s 1-week high of 92.36.

The euro was hovering near 1-1/2-week lows against the dollar, with EUR/USD at 1.1939 after losing around 0.33% on Monday. The euro had hit a 4-month high of 1.2088 on Thursday, hovering within the range of a September peak of 1.2092, its strongest level since 2015.

The British pound fell against the dollar, with GBP/USD falling 0.21% to 1.3510.

The Australian dollar was slightly changed, with AUD/USD at 0.7824, while the New Zealand dollar was higher, with NZD/USD gaining 0.22% to 0.7178.

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