The yen gained on Thursday on speculation that the Bank of Japan won’t deliver radical stimulus this week, while the dollar took a step back after the US Federal Reserve stopped short of signaling a near-term rate rise. The dollar skidded 0.5 percent to 104.92 yen, while the euro was 0.3 percent lower at 116.19 yen EURJPY= ahead of the BOJ’s two-day policy meeting that begins on Thursday.
Yen moves and political considerations could be decisive factors for the BOJ, which would prefer to conserve its policy resources in case the Japanese economy takes a turn for the worse. As investors digest the details of what the central bank does, or refrains from doing, strategists say the yen could be in for volatile trading on Friday, and the dollar might even test the 2 1/2-year low of 99 yen it plumbed in the wake of Britain’s vote to exit the European Union. “Investors will be closely watching not just the statement, but Kuroda’s press conference after the meeting ends, for clues to future policy,” said Kumiko Ishikawa, senior FX analyst at Gaitame.Com Research Institute in Tokyo.
A Citi survey of its clients and financial institutions earlier this month showed 80 percent expected the dollar to fall more than 3 percent against the yen if the BOJ stands pat on Friday and does not signal any action in September. More than 30 percent think the drop would be more than 4 percent. The Fed, meanwhile, said on Wednesday after its two-day policy meeting that it was less worried about possible shocks to the US economy, suggesting that a hike as early as September was not out of the question.
Near-term risks to the economic outlook have diminished,” Fed policymakers said. But the central bank’s improved mood wasn’t enough to cement expectations that it was gearing up to raise interest rates anytime soon. “If the US economy continues to grow despite the increased headwinds, slack in the labor market will diminish, and we expect the Fed to squeeze in one rate hike before the end of the year, most likely in December,” strategists at Rabobank wrote. “However, a December call also means that we think that the risk of the FOMC not hiking at all in 2016 is substantial,” they said.
The dollar index, which tracks the US unit against a basket of six major rivals, slipped 0.5 percent to 96.589 .DXY, moving away from its overnight high of 97.530. Earlier this week, it had risen as high as 97.569, its highest level since March. The euro edged 0.1 percent higher to $1.1073. The Australian dollar was up 0.4 percent at USD 0.7519, taking back some lost ground after falling in the previous session as a subdued inflation report left the door open for an interest rate cut next week.
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