Japanese Yen climbs after Bank of Japan policy tweak

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10 January 2018

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The US Dollar rose against almost all of its major peers for the second straight day on Tuesday, with the notable exception of the Japanese Yen.

T
he Yen was the best performing major currency on Tuesday, climbing by over half a percent and almost one percent overnight after the Bank of Japan announced a modest tweak to its market operations. The central bank announced that it will now buy less long-dated bonds as part of its asset purchasing programme. This has ramped up expectations that the BoJ could begin winding down its large scale stimulus programme at some point later this year, despite Governor Kuroda repeatedly dismissing the notion.

In the US, Federal Reserve member and renowned dove Neel Kashkari continued to strike a cautious tone on the pace of interest rate hikes in the world’s largest economy. Kashkari, who voted in favour of keeping rates unchanged when the central bank tightened policy in December, stated he wanted rates to remain low in order to boost both wages and inflation.

Fed members Evans and Bullard will both be speaking in the US this afternoon, with investors hoping to get an indication as to their voting intentions ahead of an expected interest rate increase at the FOMC’s March meeting.

Japanese Yen climbs after Bank of Japan policy tweak

After three consecutive days of gains during London trading, the Pound lost ground against the US Dollar on Tuesday, edging towards a near one week low just above the 1.35 mark. Investors remained in a fairly cautious mood after Theresa May announced further changes to her cabinet, although most of the high profile positions were all maintained.

This morning will see the release of the latest set of industrial and manufacturing production numbers for November, which are both expected to show a modest slowdown. This afternoon’s GDP estimate from NIESR is unlikely to be a big mover. Given events in the UK this week are fairly low risk, the Pound is likely to trade in line with the US Dollar.

Meanwhile, the Euro also sold-off against the greenback yesterday, despite another set of economic data that exceeded expectations. Industrial production data in Germany was particularly impressive, jumping by 5.6% year-on-year in November, its largest yearly increase since late-2011. This is another clear sign that economic activity in the Euro-area is heading in the right direction and could encourage the European Central Bank to end its quantitative easing programme later in 2018.

With no economic data release in the Eurozone today, the single currency is likely to be driven by events elsewhere.