The yen slumped after the BoJ kept interest rates very low

Singapore ( – The Japanese yen fell on Friday afternoon, after the Bank of Japan (BoJ) left its ultra-easy monetary policy unchanged even as it backed down on a pledge to keep interest rates low, while the US dollar is on track to post a second straight monthly loss. .

The outcome of BoJ Governor Kazuo Ueda’s first policy meeting is being closely watched. As expected, the BoJ said it would keep interest rates very low, and unanimously decided not to change its yield curve control (YCC) policy.

However, the central bank removed a pledge to keep interest rates at “current levels or lower” and said it would “conduct a broad perspective monetary policy review”.

The review is expected to last around one to one and a half years and will lay the groundwork for Ueda to gradually drop his predecessor’s massive stimulus program.

The yen fell to a one-week low after the decision, and was last 0.7 percent lower at 134.93 per US dollar.

“Expectations of a policy change have been dampened somewhat by the review,” said Moh Siong Sim, a currency strategist at Bank of Singapore, adding that the possible length of the review may have dampened hopes of an imminent move on policy setting.

“For now, the result is read as the result dovish.”

However, early Friday government data showed core consumer prices in the Japanese capital, Tokyo, rose 3.5 percent in April from a year earlier, beating market forecasts in a sign of widening inflationary pressures in the world’s third-largest economy.

“This is putting pressure on the BoJ, they may do something in the near term,” said Tina Teng, market analyst at CMC Markets.

In broader currency markets, the US dollar rose broadly on Friday, taking support from data showing lingering inflation in the United States, which reinforced expectations for a 25 basis point rate hike at next week’s FOMC meeting.

To greenbackssterling was down 0.14 percent to $1.2483, while the Aussie was down 0.29 percent to $0.6611.

The US dollar index rose 0.22 percent to 101.67, rebounds from a nearly two-week low reached on Wednesday (26/4/2023).

Still, the index remains on track for a nearly 1 percent monthly decline, after dropping around 2.3 percent in March.

Data released on Thursday (27/4/2023) showed that while US economic growth slowed more than expected in the first quarter, consumer spending, which was accompanied by rising inflation, accelerated.

A measure of inflation in the economy, the price index for gross domestic purchases, rose 3.8 percent in the first quarter, slowing from 3.6 percent in the fourth quarter, while the PCE core price index rose 4.9 percent in the first quarter, an increase from 4.4 percent in the fourth quarter.

“The Fed is widely expected to raise rates again next week but with inflation remaining firm, we expect the Fed to stay on hold for the rest of the year, dashing hopes of a policy change in (the second half),” said analysts at Societe Generale.

Meanwhile, the euro fell 0.1 percent to $1.1016, but remained near a recent one-year high. The common currency is eyeing a monthly gain of more than 1.5 percent.

The euro has been supported by expectations that the European Central Bank still has to go further in raising interest rates, analysts said.

“Investors favor a currency that can offer off the ongoing domestic tightening cycle and there is still room for surprises hawkish at a future meeting,” said the ING analyst.

“In that sense, the euro is one of the few currencies that can offer that combination at the moment.”

Also read: The yuan slipped 33 basis points to 6.9240 against the US dollar
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Translator: Apep Suhendar
Editor: Biqwanto Situmorang


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