Yen Inch Up as Traders Doubt Bank of Japan’s Firepower


Bank Of Japan

On Thursday, the yen inched up against the greenback, as traders have reservations that the BoJ will be able to meaningfully decline the yen when it meets on Wednesday, and betted that the U.S. Federal Reserve will not increase interest rates.

The yen increase 0.3% compared to a broadly weaker dollar to 101.645 yen, having increased nearly 20% over the past 12 months in spite of the BOJ’s best efforts to decline it.

The dollar plunged 0.2%  compared to a basket of major currencies.

Bank of Japan officials has recommended in recent weeks that there is room to reduce interest rates further, having taken them into negative territory for the first time earlier this year in spite of reproach that they are hurting financial institutions and even damaging economic sentiment.

The central bank has recognized the possible costs of unorthodox policy, encouraging the assumption that it will probably seek to steepen the yield curve to mitigate the effect of negative rates on financial institutions.

So far currency market participants are not really sure that kind of step would assist to reverse the yen’s rally, during increasing sense that the Bank of Japan may be running out of bullets.

“It will be difficult for the BOJ to come up with a measure that will significantly push down the yen,” said Koji Fukaya, CEO of FPG Securities in Tokyo.

Dealers note that selling dollar/yen after the Bank of Japan’s policy meetings has been a winning technique this year, the yen increased suddenly following the Bank of Japan’s last three meetings.

Dollar/yen options, pricing suggests the market thinks the risk of the dollar dropping below 100 yen is rather small.

According to the report, the overwhelming consensus in advance of the result of the Fed’s meeting, which will follow the BOJ’s, is that it will hold rates steady this week,  only a 12 %  possibility of a hike is priced in.

But some market participants anticipate the Fed to give a clear indication that it will increase rates this year.

That should support the greenback broadly at a time when most other central banks in the world stay in an easing cycle.

On additional News

On Tuesday, the Australian and New Zealand dollars edge higher compared to their U.S. counterpart, as sentiment on the dollar stayed vulnerable ahead of the Federal Reserve’s policy statement scheduled on Wednesday.

AUD/USD inched up  0.11% to 0.7542.

Investors stayed watchful with the U.S. dollar ahead of the Fed’s monthly policy meeting, scheduled to start later Tuesday, during ongoing doubt over a potential rate hike.

Temporarily, the minutes of the Reserve Bank of Australia’s September policy meeting said that interest rates are possible to stay on hold in the predictable future, adding that development remains in line with expectations.

NZD/USD increased  0.33% to trade at 0.7318.

However, the commodity currencies  increased were anticipated to stay limited as oil prices draw back lower on Tuesday after Venezuela stated worldwide crude supplies needed to drop by 10 percent in order to bring output down to consumption levels, sparking fresh glut supply concerns.

On Monday, crude prices had increased after Venezuela stated OPEC and no-OPEC producers were close to getting a production stabilizing deal.

The U.S. dollar index, which gauges the greenback’s strong point against a trade-weighted basket of six major currencies, was stable at 95.78.

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