Economy

Dollar seesaws against yen

Dollar seesaws against yen”

Some market watchers said Japan's reluctance to change its policy aggressively stems from its desire to keep its currency competitive, especially against the Chinese yuan CNY=CFXS, after Beijing let its currency weaken by more than 7 percent versus the dollar since mid-June as trade war tensions escalated. The primary tweaks that the BOJ may consider include allowing interesting rates to fluctuate in a wider band around the central bank's target and broadening the universe of equities that it buys. The British pound has already priced the move, David Riley, chief investment strategist at BlueBay Asset Management, said, adding: "I think they will do it but it will be one and done".

The yen slipped around 0.2 per cent to trade around 111.2 yen.

At a two-day rate review that ended on Tuesday, the BOJ chose to maintain its short-term interest rate target at minus 0.1 percent and a pledge to guide 10-year government bond yields around zero percent by a 7-2 vote.

Yields on U.S. Treasury bonds rose, with the benchmark 10-year at a six-week high, as investors sold U.S. government bonds on growing speculation that the BOJ may adjust its ultra-loose monetary policy at its meeting.

The Australian dollar traded up 0.3 percent at $0.7430.

The BoJ is set to conduct purchases of Japanese government bonds in a flexible manner so that the outstanding amount will increase at an annual pace of about JPY 80 trillion. They lowered their forecast for this fiscal year to 1.1 percent from1.3 percent and for next year to 1.5 percent from 1.8 percent.

"A rise in medium- to long-term inflation expectations has been lagging behind", the BOJ said in a quarterly report on the economic and price outlook.

The new forecasts show the BoJ's struggle to stoke inflation, while its peers in the United States and Europe normalise policy. It will be looking for some relief on Thursday, when the BoE is widely expected to raise interest rates for only the second time since the 2008 financial crisis. "The guidance is vague but gives some assurance that the current easing measures will continued at least into fiscal 2020, after checking the side effects of the planned consumption tax hike".

Japanese shares pared losses while the yen fell and yields on Japanese and USA bonds declined on Tuesday after the BOJ decision, which stayed away from making drastic changes to its accommodative policy. It cited factors such as rising numbers of women and seniors entering the workplace, which has weighed on wages.

At a two-day rate review that ended on Tuesday, the BOJ cut its price forecasts and took steps to make its massive stimulus programme more sustainable on the view it will take longer than expected to meet its 2 percent target.

"But it's hard to guess what the BOJ will do", he said. "Kuroda is serious about doing all he can to bring inflation up to acceptable levels on a sustained basis".



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