The yen fell to two-week lows on Friday after the Bank of Japan kept interest rates steady and signalled it was in no hurry to follow the Fed’s example in tightening its ultra-loose monetary policy. Governor Haruhiko Kuroda said there was “some distance” to achieving the BOJ’s inflation target of 2 percent, adding that it was “inappropriate” to say how the Bank would exit its massive stimulus programme. That ran contrary to market speculation in the past month that the BoJ could be considering its own plan for eventually withdrawing emergency stimulus for the economy, and the yen fell as much as 0.4 percent to 111.380 yen per dollar.
“The BoJ seems definitely stuck in its very loose monetary policy as deflationary pressures are still important,” Swissquote analyst Yann Quelenn said in a note to clients. “Japan, in the medium-term, will try to expand the monetary policy divergence with the US in order to help reduce pressures on its currency. Yet we consider that the US economy is overestimated and may trigger again inflow towards the Japanese yen.” Those moves came as the dollar was edging down from two-week highs hit since the Federal Reserve raised interest rates on Wednesday and stuck to its guns on the likelihood of further moves this year.
The index that measures the greenback’s broader strength was less than 0.1 percent lower on the day at 97.401, but still set for its second weekly gain on the trot. A round of poor economic data has undermined market expectations for the scale of future U.S. rate rises and is likely to continue to weigh on the greenback. “I hear nothing from the Fed that seeks to dissuade the market from thinking that we’re heading towards an extremely low peak in rates. And I think that’s what’s going to cap the dollar now,” said Kit Juckes, currency strategist with Societe Generale in London.
“The more interesting question is, will the communication be that there’s another one (hike) coming in the fall.” The euro was up 0.2 percent at $1.1169, but still more than a cent below a seven-month peak of $1.1296 hit before the Fed’s decision on Wednesday.
Thursday’s run of U.S. economic data gave dollar bulls some reason for cheer. The Labor Department said initial claims for state unemployment benefits dropped 8,000 to a seasonally adjusted 237,000 for the week ended June 10, lower than the 242,000 that economists had predicted. “The USD appears to be driven by some re-assessment of this week’s FOMC decision as well some upbeat US manufacturing survey data on Thursday,” Credit Agricole strategists wrote in a note.