Yen holds on to gains as traders digest BOJ surprise policy tweak

SINGAPORE : The yen eased a bit on Wednesday but held on to most of its overnight gains against the dollar as traders contemplated the shock Tuesday move by the Bank of Japan to adjust its control of bond yields, a slight move away from its ultra-easy monetary policy.

The BOJ decided to let long-term yields move 50 basis points either side of its 0 per cent target, wider than the 25 basis point band previously imposed, even as it kept broad policy settings unchanged.

On Wednesday, the yen weakened 0.34 per cent versus the greenback to 132.15 per dollar, but was not far off the four-month high of 130.58 per dollar that it touched on Tuesday in a 4 per cent spike.

The currency market is still digesting the BOJ's policy tweak, said Carol Kong, a currency strategist at the Commonwealth Bank of Australia.

"The market has interpreted the decision as step towards an eventual pivot from the current ultra-dovish monetary policy," she said, adding that the yen could continue to appreciate in the near term.

The BOJ decision comes as investors fret about a slowing world economy, sky-high inflation and other central banks' moves to lift interest rates.

It also comes in a year when the yen has been exceptionally volatile, with the Japanese authorities stepping into the market in September to prop it up for the first time since 1998 and again in October, when it weakened to a 32-year low of 151.94 per dollar.

BOJ Governor Haruhiko Kuroda, who will step down in April, stressed the adjustment was not a prelude to a bigger tweak to the yield curve control policy and an eventual exit from ultra-easy monetary policy.

The next policy decision the BOJ takes will likely be a major one, such as changing long-/short-term policy rate targets or terminating yield curve control altogether, according to Goldman Sachs analysts.

Junichi Inoue, head of Japanese equities at Janus Henderson Investors, said there was likely to be some volatility for the short term. But he expected the BOJ decision to be "very positive for (the) overall market as it will remove unreasonable prices" such as the yen at 150 per dollar.

The dollar index, which measures the greenback against the yen and five other major currencies, was 0.154 per cent higher at 104.110, having slipped 0.6 per cent on Tuesday. The index is heading for its biggest quarterly loss in nearly 12 years.

The euro was down 0.13 per cent at $1.0607, while sterling was last trading at $1.2164, down 0.14 per cent on the day.

The Australian dollar fell 0.21 per cent to $0.666, while the kiwi fell 0.61 per cent to $0.631. The Antipodean currencies were wobbly after suffering big losses against the yen as rising Japanese yields threatened to kill flows into usually crowded carry trades.

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Currency bid prices at 0443 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0608 $1.0623 -0.14 per cent -6.69 per cent +1.0628 +1.0608

Dollar/Yen 132.2500 131.6650 +0.32 per cent +14.84 per cent +132.3050 +131.6800

Euro/Yen 140.31 139.88 +0.31 per cent +7.67 per cent +140.5000 +139.6900

Dollar/Swiss 0.9285 0.9263 +0.21 per cent +1.77 per cent +0.9285 +0.9265

Sterling/Dollar 1.2162 1.2188 -0.19 per cent -10.06 per cent +1.2192 +1.2164

Dollar/Canadian 1.3618 1.3613 +0.03 per cent +7.70 per cent +1.3618 +1.3590

Aussie/Dollar 0.6664 0.6680 -0.21 per cent -8.30 per cent +0.6697 +0.6657

NZ 0.6307 0.6346 -0.58 per cent -7.82 per cent +0.6350 +0.6308

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ