The Japanese yen was one of the worst performers among the U.S. dollar’s main rivals on Tuesday, trading lower after the Bank of Japan surprised markets by keeping its monetary policy ultraloose.
During Asia trading hours, the Bank of Japan tweaked its yield curve control policy, but didn’t significantly alter its accommodative posture as some market participants had hoped, leaving the BOJ one of the last developed economies with an easy-money policy still in place.
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“It seems the BOJ will be the last major central bank to pull the trigger on tightening policy as the Japanese economy continues to struggle with stubbornly low inflation levels,” wrote Hussein Sayed, chief market strategist at FXTM. The BOJ’s target is 2%, but likely won’t be reached before 2021, according to the central bank.
BOJ Gov. Haruhiko Kuroda said policy makers would “likely have to continue monetary easing longer than expected, and we wanted to secure credibility for doing that by showing forward guidance.” The BOJ had not provided forward guidance under Kuroda’s leadership before.
“This should allow further widening in spread between Japan’s bonds and other global bonds toward year-end, suggesting that the yen is likely to remain under pressure for the near future,” Sayed said.
The Japanese yen USDJPY, +0.66% sold off in response, with one dollar last fetching ¥111.81, up from ¥111.06 late Monday in New York and at a 1½-week high. Versus the euro EURJPY, +0.62% the yen also slipped, and one euro bought ¥130.84, up 0.7%.
Over the month of July, the yen slipped 1% versus the dollar, and 1.1% against the euro, according to FactSet.
Markets will turn their attention to policy makers in the U.S., where the Federal Reserve, with a two-day gathering commencing Tuesday. Although no changes in policy are expected, investors will closely read the policy statement for the outlook for future rate increases. Fed-funds futures show traders see an 88.7% chance of a 25 basis point rate increase when policy makers meet in September.
Meanwhile, the Bank of England is scheduled to convene on Thursday.
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The ICE U.S. Dollar Index DXY, +0.14% rose 0.2% to 94.471 on Tuesday, advancing after various economic data reports earlier, including better-than-expected consumer confidence. For the month of July, the dollar gauge is on track for a 0.2% drop, it’s first monthly loss since March.
Elsewhere, eurozone second-quarter GDP came in at an annualized 2.1%, compared with the FactSet consensus forecast of 2.2%, while harmonized inflation across the EU rose to 2.1% in July, versus 2% expected.
The mixed, but broadly positive bag of data, allowed the euro EURUSD, -0.0769% to trade higher earlier, but the strengthening dollar kept the shared currency little changed at $1.1703. The euro is up 0.3% in July.
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