New York: The dollar plunged against the yen after the Federal Reserve reiterated a gradual approach to tightening and traders awaited Friday’s Bank of Japan monetary policy decision.
A gauge of the greenback fell for a third day as traders saw only a 26 per cent chance of a US interest rate increase in September, after the Fed gave little hint of an imminent move. Japan’s currency resumed gains after dropping on Wednesday when Prime Minister Shinzo Abe announced a 28 trillion yen ($267 billion) fiscal-stimulus package.
“We’re seeing broad dollar weakness,” said Yuji Kameoka, the chief foreign-exchange strategist at Daiwa Securities Co. in Tokyo. “Even though the Fed did note some improvements in the economy, a rate hike in September still isn’t certain.”
The dollar slid 0.6 per cent to 104.78 yen at 12:47pm in Tokyo, after advancing 0.7 per cent Wednesday. Japan’s currency rose 0.5 per cent to 116.03 per euro.
A measure of volatility in the dollar-yen exchange rate climbed above 50 per cent to the highest since the global financial crisis in 2008.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, dropped 0.3 per cent after falling 0.4 per cent in the previous two days.
BOJ Focus
“The BOJ news tomorrow will trump the FOMC news last night,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Auckland. “An above consensus amount of stimulus would surely push dollar-yen higher.”
Almost 80 per cent of analysts surveyed by Bloomberg forecast Governor Haruhiko Kuroda and his board will expand the record program at their two-day meeting starting Thursday. The yen has surged almost 15 per cent versus the greenback this year, outperforming its developed-market peers, as concern the global economy is slowing spurs demand for safer assets and counteracts the central bank’s currency-weakening stimulus.
The BOJ’s introduction of a negative interest rate in January “gave people an opportunity to buy yen and sell dollars,” said Stephen Innes, a senior trader at Oanda Corp. in Singapore. “What we need to get dollar-yen back up again and to have the Fed to do the heavy lifting is the sense that US interest rates have to go up.”
