Photographer: Tomohiro Ohsumi

Yen Falls Second Day as BOJ Caps Week of Central Bank Meetings

  • BOJ maintains stimulus even as other central banks plan exit
  • Canada’s dollar outperforms after surprise tightening talk

The yen fell for a second day as the Bank of Japan maintained its easy monetary stance even as more policy makers around the world seek to exit stimulus.

Japan’s currency headed for its biggest weekly loss in more than a month as economists pushed back expectations of when the BOJ will exit its record stimulus program. Canada’s dollar was the week’s top performer among the Group-of-10 currencies after the central bank’s surprise talk of tightening spurred traders to boost bets for an interest-rate increase.

“Dollar-yen will eventually head higher over the coming months,” said Rodrigo Catril, a Sydney-based currency strategist at National Australia Bank Ltd. “We will see an improvement in U.S. data in the coming months, particularly inflation. Treasury yields should trade higher, pushing the dollar toward 114-to-115 yen.”

The Bank of Japan left its monetary stimulus program unchanged by a 7-2 vote, and said improving private consumption will support a growing economy. Governor Haruhiko Kuroda is scheduled to hold a press conference at 3:30 p.m. in Tokyo.

  • USD/JPY advances 0.2% to 111.19, adding to a 1.2% jump Thursday
    • Pair climbed 0.8% this week, set for biggest gain since week ended May 5
  • Focus will be on Kuroda’s press conference and any clues about possible adjustments to the bond-buying program and an eventual exit from stimulus
  • “The implementation of an exit strategy is a long, long long way in the future,” says Joseph Capurso, a senior currency strategist at Commonwealth Bank of Australia in Sydney. “But the risk is participants hear exit strategy and extrapolate higher Japanese rates in the not too distant future”  
    • Any drop in USD/JPY would be a good opportunity to buy because the BOJ is “nowhere near exiting their extreme monetary policy”
  • USD/JPY options expiring Friday include strike 110.00 for $3.7b and strike 112.00 for $1.98b: DTCC
    • There are sizable offers from Japanese exporters between 111.50/70 as well as bids from Tokyo funds near 110.20
  • USD/CAD falls 0.1% to 1.3261, declining 1.6% this week, most since December
    • There’s a 77% probability of a rate hike by December vs 30% a week ago, according to Bloomberg calculations based on overnight index swaps
  • Treasury 10-year yield little changed at 2.17% after rising 4bps Thursday
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