Yen jumps, dollar steady ahead of U.S. inflation data

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LONDON — The yen got a boost on Thursday on expectations the Bank of Japan will review the side effects of its monetary easing, while the dollar held near a seven-month low against the euro ahead of U.S. inflation data later in the day.

The yen rose 1.3% to a session high of 130.80 per dollar following a Yomiuri report that the Bank of Japan (BOJ) will review the side effects of its monetary easing at next week’s policy meeting and may take additional steps to correct distortions in the yield curve.

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The news follows the BOJ’s surprise tweak in December to its bond yield curve control, though the move has failed to address distortions caused in the bond market by the central bank’s massive bond buying.

“The report overnight emphasizes that next week’s Bank of Japan meeting is live for a potential policy change,” said Chris Turner, global head of markets at ING in London.

“You could start to see the normalization of monetary policy which would be a huge step for Japan (and) a very positive tailwind for the yen,” Turner added.

Elsewhere, the dollar was a little changed ahead of closely watched U.S. inflation data, which could provide more clarity on how quickly price pressures are easing in the world’s largest economy and the impact on the Federal Reserve’s rate-hike path.

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The U.S. dollar index was last down 0.06% to 103.04, not far off its seven-month low of 102.93 hit earlier in the week.

“There is near-term upside risk to the dollar for the simple reason it has sold off a lot since last Friday’s nonfarm payrolls report,” said Axel Rudolph, financial analyst at IG.

“Traders who have been short since Friday have had a good trade so even if CPI is in line with expectations I think there will be some short-term dollar strength as they exit their short positions,” Rudolph added.

Economists polled by Reuters expect December core inflation to moderate to 5.7% from 6.0% on an annual basis, with headline prices seen 6.5% higher than a year earlier.

Sterling rose 0.1% to $1.2160, while the euro was little changed at $1.0763, after rising to a seven-month peak of $1.07765 in the previous session.

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The euro continues to find support from hawkish messaging from European Central Bank officials, with four on Wednesday calling for additional rate increases.

“Our expectations are for another 125 basis points of rate hikes from the ECB and stay there until 2024,” ING’s Turner said.

“Our core views for Fed policy versus ECB policy would be for a stronger euro-dollar through the year.”

The Aussie slipped 0.1% to $0.6901, while the kiwi fell 0.2% to $0.6356.

Data released on Thursday showed Australia’s trade surplus unexpectedly widened in November and came in well above forecasts.

China’s offshore yuan last stood at 6.7609 per dollar, after hitting a five-month high of 6.7505 per dollar earlier in the session, on optimism that China’s economy is on the road to recovery.

Meanwhile, bitcoin rose for the fifth consecutive day, hitting its highest level in a month at $18,370.

(Reporting by Samuel Indyk in London and Rae Wee in Singapore; Editing by Emelia Sithole-Matarise and Mark Potter)