Yen Reigns This Week as BOJ Delays Time to Reach 2% Inflation

  • Expects to meet target in half-year ending March 2017
  • Volatility in dollar-yen drops to two-month low post-meeting

The yen rose, cementing its status as this week’s best-performing Group-of-10 currency, after the Bank of Japan refrained from adding to monetary stimulus and pushed back the time-frame for reaching its inflation target.

Japan’s currency strengthened versus the dollar after Friday’s decision to continue expanding the monetary base by 80 trillion yen ($664 billion) a year. BOJ Governor Haruhiko Kuroda pushed back the deadline to achieve stable 2 percent inflation to the six months through March 2017, and blamed falling oil prices for missing the existing target. Trader expectations for yen price swings sank to a two-month low.

“Looking at the tone of the comments, it doesn’t look like Kuroda is in any rush” to expand stimulus, said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “From a short-term perspective we may see some softening in dollar-yen.”

The yen advanced 0.6 percent to 120.36 per dollar as of 7:20 a.m. New York time, on track for a 0.9 percent gain this week, its biggest since early September.

Implied one-month volatility dropped to as low as 7.9 percent, the lowest since Aug. 21. Japan’s currency strengthened 0.4 percent to 132.49 to the euro.

‘Buy Dip’

“It’s still a case of preferring to buy the dip” in the dollar-yen rate because Japan standing pat on stimulus “will prove to be a relatively temporary concern” as the Federal Reserve gets closer to raising rates, Stretch said.

The BOJ’s Kuroda launched unprecedented stimulus in April 2013, a month after taking office, as part of Prime Minister Shinzo Abe’s policy to reflate the world’s third-largest economy. The asset purchases Japan uses to expand the monetary base tend to weaken a currency. If the yen’s roughly 20 percent decline since the program started is derailed, it could make it even harder for officials to meet their inflation targets.

New Zealand’s dollar led gains among major currencies on Friday, erasing a weekly decline, after a gauge of business confidence turned positive. The kiwi climbed 0.9 percent to 67.56 U.S. cents, rising for the first time in four days.

Slowdown Signals

A gauge of the U.S. dollar versus its peers fell 0.4 percent before reports which, according to economists, will show a slowdown in personal income and spending in September. The University of Michigan Consumer Sentiment Index for October is predicted to rise.

With speculation building that the Fed’s back on track to tighten policy in December, the Japanese currency’s gains versus the dollar may be short-lived.

“We may see some yen strengthening over the short term, but I don’t think this is going to be either material or sustainable,” Vasileios Gkionakis, London-based head of global foreign-exchange strategy at UniCredit SpA, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro. “Japan remains a mess as far as I’m concerned.”

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