Yen Gains After Bank of Japan Refrains From Additional Stimulus

Updated on

The yen advanced to the strongest in a week against the dollar after the Bank of Japan refrained from adding to already unprecedented stimulus at a policy meeting.

Japan’s currency appreciated against its 16 major peers after central bank Governor Haruhiko Kuroda kept a pledge to expand the monetary base at an annual pace of 80 trillion yen ($674 billion). Only two of the 34 economists surveyed by Bloomberg had predicted more stimulus.

“There probably had been some fast money who had been speculating that we could get an extra 10 trillion yen,” said Chris Weston, chief market strategist in Melbourne at IG Australia, a unit of IG Group Holdings Plc. “I’d imagine there were people who were positioned in the market for some yen weakness and are now unwinding those trades.”

The yen rose 0.3 percent to 118.69 per dollar as of 7:18 a.m. in London, heading for its first monthly advance since January. It climbed 0.7 percent to 131.58 against the euro.

Japan’s currency has advanced 3.6 percent this year, the best performer after the Swiss franc of 10 developed-market counterparts tracked by Bloomberg Correlation-Weighted Indexes.

Kuroda unexpectedly expanded his quantitative and qualitative easing program in October to the current pace of bond purchases, after starting it in April 2013. A majority of economists surveyed by Bloomberg expect a boost by the end of October as Kuroda chases a 2 percent inflation target.

Following its monetary policy meeting, the BOJ cut its growth and price estimates for the year through March and said it now sees price gains reaching its goal in the first half of the following fiscal year.

‘Easier Bias’

New Zealand’s dollar slumped for a second day after the central bank said it would cut interest rates if inflation pressures decline and called the currency’s recent strength “unwelcome.”

The kiwi fell against all its major peers as the Reserve Bank of New Zealand kept the official cash rate at 3.5 percent. Governor Graeme Wheeler said the currency was unjustifiably high on a trade-weighted basis.

“The RBNZ moved to an easier bias,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. Wheeler’s language on the currency’s level was slightly stronger than in the past, he said.

The kiwi declined 0.9 percent to 76.14 U.S. cents after sliding as much as 1.1 percent.

‘Transitory’ Factors

A gauge of the dollar rose for the first time in seven days after the Federal Reserve on Wednesday held its benchmark overnight fed funds rate in a zero to 0.25 percent range, where it has been since December 2008.

The Federal Open Market Committee said “transitory” factors were partly responsible for slower economic growth, and inflation is trending higher. Data before the announcement showed the U.S. economy expanded at its slowest pace in a year.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.1 percent to 1,166.71 after closing at the lowest since Feb. 25 on Wednesday. The gauge headed for its first monthly decline since June. The greenback rose 0.3 percent to $1.1115 per euro.

“Until markets see data confirming the slump in the first quarter was temporary, or the European Central Bank raises concern about a strong currency, the dollar will remain pressured against the euro,” said Masafumi Yamamoto, a senior strategist at Monex Inc. in Tokyo.

The dollar will weaken to as low as $1.14 against the euro next month, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE