03/11/2023
31-Oct-23
The yen slides as BOJ's policy tweak underwhelms; euro rises.
The yen weakened on Tuesday after a small step by the Bank of Japan (BOJ) towards ending years of monetary stimulus failed to appease some investors who had expected a bigger move, while the euro rose ahead of regional inflation data.
At the conclusion of its two-day policy meeting, the BOJ said that it would keep the 10-year government bond yield around 0% set under its yield curve control (YCC), but re-defined 1.0% as a loose "upper bound" rather than a rigid cap.
It also removed a pledge to defend the level with offers to buy unlimited amount of bonds.
Some analysts touted the move as a de-facto abolishment of the BOJ's controversial YCC regime, but the yen USDJPY still slid 0.9% to 150.37, moving towards a one-year low of 150.78 hit last week.
The euro jumped to a 15-year high against the Japanese currency, up 1.2% at 160 yen.
"The 1% is no longer a strict cap and so that means they will allow for JGB yields to rise above 1%. This is as good as quietly allowing YCC to fade in the background," said Christopher Wong, a currency strategist at OCBC.
Elsewhere, the euro EURUSD rose 0.26% to $1.0643 ahead of euro zone inflation data due later on Tuesday. The single currency looked set to reverse two straight months of losses with a 0.66% gain for October.
Economists expect a decline in price pressure in the bloc after data on Monday showed inflation in Germany eased noticeably in October and Spain's 12-month inflation was unchanged from September at 3.5%.
"Whether or not the year-on-year inflation rate falls a little more than expected may not be all that interesting for the FX market today, as volatile energy and food prices play an important role," said Michael Pfister, FX Analyst at Commerzbank.
soon rate cuts are unlikely to be discussed by the European Central Bank in the near future".
The greenback edged lower, with the dollar index DXY last down 0.08% at 106.07.
While the index looked set to end the month broadly unchanged, analysts say the dollar remains underpinned by risks of another rate hike from the Federal Reserve, noting a still-resilient U.S. economy.
"The Fed can still have the luxury of sounding hawkish in its outlook, by stressing the 'high for long' narrative," said Thierry Wikman, Macquarie's global FX and interest rates strategist, of the Fed's rate decision due on Wednesday.
The sterling GBPUSD was flat at $1.2174 and poised to lose 0.2% for the month, ahead of an interest rate decision by the Bank of England later in the week where expectations are for the central bank to stand pat.
