Yen plunges as BOJ sticks to ultra-easy policy

Article content

SINGAPORE — The yen dived sharply

against major currencies on Wednesday after the Bank of Japan

Article content

maintained ultra-low interest rates, disappointing some

investors who had hoped the central bank would relax its yield

curve control policy further.

The central bank stunned the market last month by raising

its cap on the 10-year yield to 0.5% from 0.25%,

doubling the band it would permit above or below its target of

zero. Since then, speculation had swirled that the BOJ could

tweak its yield curve control (YCC) policy further or even scrap

Article content

it.

At a two-day policy meeting, the BOJ kept intact its YCC

targets, set at -0.1% for short-term interest rates and around

0% for the 10-year yield, by a unanimous vote. It also made no

change to its guidance that allows the 10-year bond yield to

move 50 basis points either side of its 0% target.

As a result, the yen suffered broad losses, with the Asian

currency down 2.3 % against the dollar and was set

for its worst day since March 2020.

The euro gained 2% to 141.1 yen and sterling

rose by more than 2% to 160.71 yen. The Australian

dollar gained 2.2% and Singapore dollar

rose 1.9%. The U.S. dollar was last up 2.42% at 131.22 yen.

“The can has been kicked down the road and the attention

will shift to the next meeting,” said Moh Siong Sim, currency

Article content

strategist at Bank of Singapore. “It’s a question of when, not

if.”

Some investors have been betting the BOJ will be forced to

adjust, or even dismantle, YCC on the view the central bank

cannot sustain the massive volume of bond buying needed to

defend the cap.

On Wednesday, Japanese government bond yields tumbled the

most in a decade, retreating sharply from the central bank’s

0.5% ceiling after the decision. The 10-year yield has

repeatedly breached the ceiling in the past four sessions.

“Speculators are likely to increase their hawkish bets on a

policy shift from the BOJ,” said Anderson Alves, market analyst

at ActivTrades.

“Today’s policy price action shows that the current

framework could fuel another unwelcome plunge for the yen that

Article content

could inflate the cost of raw material imports.”

The dollar index, which measures the safe-haven

dollar against six peers, rose 0.42% at 102.810, its biggest

one-day percentage jump since Jan. 5.

Against the U.S. dollar, sterling was last trading

at $1.2281, down 0.06% on the day, while the euro

weakened 0.18% to $1.0769.

The Australian dollar rose mostly flat, while the

kiwi rose 0.30% at $0.645.

========================================================

Currency bid prices at 0533 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0773 $1.0790 -0.16% +0.54% +1.0799 +1.0767

Dollar/Yen 131.2100 128.1800 +2.40% +0.02% +131.5550 +128.2750

Euro/Yen

Dollar/Swiss 0.9235 0.9218 +0.13% -0.18% +0.9245 +0.9218

Sterling/Dollar 1.2271 1.2287 -0.14% +1.46% +1.2289 +1.2254

Dollar/Canadian 1.3381 1.3391 -0.06% -1.23% +1.3409 +1.3377

Aussie/Dollar 0.6986 0.6986 +0.06% +2.55% +0.7002 +0.6975

NZ 0.6445 0.6430 +0.23% +1.50% +0.6458 +0.6424

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Ankur Banerjee in Singapore; Editing by Sam

Holmes, Simon Cameron-Moore and Kim Coghill)