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Fundamental Analysis

FOREX-Dollar weakens against yen as BoJ stands pat

Japan has been able to avoid the slowdown in inflation

LONDON, April 8 (Reuters) – The dollar fell on Wednesday, retreating from a near three-week high hit against the yen the previous day, after the Bank of Japan kept monetary policy unchanged despite slowing inflation.

Some had begun to expect further easing in view of the fact that the BOJ has missed its ambitious target of achieving 2 percent inflation in two years.

Governor Haruhiko Kuroda told a press conference that thanks to easing steps taken last October, Japan has been able to avoid the slowdown in inflation while real wages are likely to pick up, dashing hopes of a further expansion in its asset-buying programme in coming months.

As a result the yen climbed. The dollar shed 0.4 percent to 119.80 yen, pulling away from a near three-week high of 120.45 yen hit on Tuesday. The dollar index fell 0.4 percent to 97.440 after gaining 0.9 percent on Tuesday.

“It does not look like another round of quantitative easing from the BOJ is a done deal,” said Petr Krpata, FX strategist at ING. “We are seeing the dollar give up some of its strong gains made earlier this week and that could be due to some caution ahead of the release of the minutes from the Fed policy meet.”

The minutes of the Federal Reserve’s March meeting will be released later in the day and traders will scrutinise it for any concerns from policymakers about a strong dollar and its impact on U.S. growth. Any unease from Fed policymakers about the dollar could see the greenback ease further.

Nevertheless, a drop in the dollar, especially against the yen is likely to prove temporary given the diverging monetary policy outlook between the Fed on one hand and the BOJ and the European Central Bank on the other.

“The Fed may have to delay hiking rates, but it is still on track to tighten policy when its peers are stuck in quantitative easing,” said Shinichiro Kadota, chief Japan forex strategist at Barclays in Tokyo.

“Investor flows continue to favour the dollar under such conditions, with yields in Europe at very low levels and Japanese investors seeking foreign assets as part of their portfolio rebalancing,” he said.

Japan finance ministry data on Wednesday showed Japanese investors were net buyers of foreign stocks and bonds for the third straight month in March. Their purchase of a net 4.311 trillion yen ($36 billion) in March was the highest in nearly five years.

Meanwhile, the euro nudged up 0.3 percent to $1.0847 despite an unexpected drop in German industrial orders in February. Orders for goods made in Germany decreased by 0.9 percent on the month, falling well short of a Reuters poll which had forecast a 1.5 percent rise. (Additional reporting by Shinichi Saoshiro; Editing by Hugh Lawson)

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