Yen gives up some ground before the important BOJ test

18 Dec 2023 , 09:45 AM

With markets anxiously expecting word on whether the dovish central bank could eventually unwind its ultra-loose monetary settings, the yen slightly declined on Monday as the Bank of Japan (BOJ) began its two-day monetary policy meeting.

The Federal Reserve, the European Central Bank (ECB), and the Bank of England (BoE) all made rate decisions last week, which caused significant changes in the overall market. This week, however, saw cautious currency starts.

Early Asian trade saw the yen drop 0.2% to 142.41 per dollar, giving back part of the roughly 2% gain it had gained last week as a result of the dollar’s dip.

The Japanese yen has experienced significant volatility in recent weeks as investors attempt to understand the timing of the BOJ’s potential withdrawal of its negative interest rate policy. Earlier this month, remarks made by Governor Kazuo Ueda caused the currency to spike sharply higher.

Later, on information indicating a policy change was unlikely to occur as early as December, that was reversed, and investors are now waiting for the BOJ decision on Tuesday to get more clarity on the bank’s rate outlook.

The yen fell 0.1% against the euro to 155.11. To 95.45 yen, the Australian dollar increased by 0.13%.

In other news, the Fed’s hint last week about rate reduction for next year sent the dollar relatively close to four-month lows against the British pound and nearly five-month lows against the Australian and New Zealand dollars.

The kiwi increased 0.19% to $0.6219, while the sterling recently purchased $1.2678.

Following the Fed’s policy meeting last week, the greenback, which has gained strength for the majority of 2022 and 2023 from a series of aggressive rate hikes by the Fed and forecasts of higher-for-longer rates, fell 1.3% versus a basket of currencies.

A weaker dollar helped the euro go up 0.07% to $1.0900 last time, but the euro is still burdened by a dimming growth prognosis for the euro zone.

According to data released this week, the bloc’s economy is most likely in recession because the decline in economic activity unexpectedly got worse in December.

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