The dollar climbed to a six-week high against safe-haven yen on Thursday, as news of Japan’s plans for an economic stimulus package and growing expectations for the Bank of Japan (BOJ) to ease policy helped support risk sentiment.
The yen remained on the defensive after retreating in the past two weeks due to a broad recovery in risk appetite, speculation about M&A-related yen-selling as well as expectations for more BOJ monetary stimulus.
Gains in Japanese equities, which were supported by media reports that the Japanese government was planning to compile a stimulus package of at least 20 trillion yen, dragged on the safe-haven yen.
The dollar rose to as high as 107.49 yen, its strongest level since June 7, and last changed hands at 106.90 yen, up 0.1 percent on the day.
The dollar’s advance took a pause ahead of chart resistance at around 107.72 yen, the top of the cloud on the daily Ichimoku chart, a popular technical analysis tool.
While the dollar may face some selling for now, it seems poised for a further push higher against the yen, said Shinsuke Sato, head of FX trading group for Sumitomo Mitsui Banking Corporation in Tokyo.
“If you consider the factors that are in sight now, there are hopes for a decent economic package and hopes about the BOJ, and in terms of market sentiment it’s hard to find factors that could trigger risk-off moves,” Sato said.
“So the image that I have is that it might break higher,” he added, referring to the dollar’s moves against the yen.
Some market players, however, are worrying about the risk of a pullback in the dollar against the yen.
“The dollar could suffer a sudden fall, with the Dow possibly falling any time now following days of successive record highs,” said Junichi Ishikawa, forex analyst at IG Securities in Tokyo.
The S&P 500 and the Dow set fresh records on Wednesday, with the latter rising for the ninth straight session, as Microsoft’s strong results boosted the indexes.
The euro rose 0.2 percent against the yen to 117.94 yen. Against the dollar, the euro gained 0.2 percent to $1.1033.
While the European Central Bank is seen standing pat at its policy meeting later on Thursday, the market expects the central bank to hint at future monetary policy easing, forecast to come as early as September.
Elsewhere, the New Zealand dollar fell 0.6 percent to $0.6986 and touched a six-week low of $0.6952.
The kiwi came under pressure after the Reserve Bank of New Zealand said further rate cuts are likely as it sets its sights on the high New Zealand dollar and perilously low inflation.
That cemented market expectations for the central bank to cut interest rates at its rate decision on Aug. 11.