The yen fell to its lowest level in more than a month on Friday, after the Bank of Japan (BOJ) held its rates and said it would reduce its bond purchases in the future, while the euro, mired in political turmoil, was heading towards a weekly loss.
Defying market expectations, the BOJ said at the end of its two-day meeting that it would continue buying government bonds at the current pace and would only detail its plan to reduce purchases for one to two years ahead than at its July meeting.
Markets had expected the central bank to announce a reduction in its massive bond purchases this month, following various media reports leading up to Friday’s decision.
The yen fell about 0.6% to 157.99 per dollar, its lowest level in more than a month.
“It is surprising that no decision has been made on reducing bond purchases this time,” said Hirofumi Suzuki, chief foreign exchange market strategist at SMBC.
“At the next meeting, the BOJ said it would decide on a specific plan for the next one to two years. Therefore, the outcome is considered to have been somewhat dovish.”
Other currencies also increased their gains against the Japanese currency, with sterling hitting a 16-year high of 201.45 yen. The euro was up 0.57% at 169.56 yen.
In the broader market, the dollar led, helped by gains against the euro and safe-haven offers, as the call for a surprise vote in France fueled fears of political uncertainty at home and in the larger bloc of the eurozone.
Sterling was down 0.1% at $1.2750 and looked set to gain 0.3% weekly.
The Australian dollar fell 0.17% to $0.6626, while the New Zealand dollar slipped 0.28% to $0.6151.
However, the two Antipodean currencies were on track to rise about 0.8% and 1% for the week, respectively, due to expectations that rates could remain higher in those countries for longer and a series of US economic data this week which revived the possibility of an interest rate cut by the Federal Reserve.
Data on Thursday showed that the number of Americans filing new claims for unemployment benefits rose to a 10-month high last week, while separate data indicated that producer prices fell by unexpectedly in May, strengthening bets that the Fed could launch its easing cycle in September.
The figures follow Wednesday’s US inflation reading, which showed consumer prices were unexpectedly unchanged in May.
While the Fed, at the end of its monetary policy meeting this week, adopted a more hawkish tone than expected and only considered one rate cut for 2024, investors preferred to focus on the data weaker than expected, which had the effect of propelling Wall Street to record highs and sending government bond yields tumbling.
“The Fed has changed its mind multiple times about the expected path of its policy, so we don’t put much stock in its new set of projections – and Powell himself has said he doesn’t “not held with great confidence,’ highlighting the Fed’s data-dependent approach,” said Jean Boivin, director of the BlackRock Investment Institute.
“Regardless of the Fed’s forward-looking statement, inflation surprises – one way or the other – will likely continue to lead to significant revisions to the monetary policy outlook.”
The dollar index remained stable at 105.33.
POLITICAL NERVOUSNESS
The euro last bought at $1.07355 and was poised to lose around 0.6% per week.
The single currency has endured a turbulent week following French President Emmanuel Macron’s decision on Sunday to call for a snap vote in his country, spooking investors.
The move came after France’s far right crushed Mr Macron’s party in the European elections.
Against the pound sterling, the euro remained near its lowest level in 22 months and recorded a weekly decline of 0.9%.
Likewise, the common currency remained near its weakest level for more than five months against the Aussie and for six months against the Kiwi.
“Although Mr. Macron’s announcement came as a surprise, it is possible that new elections will go in his favor. However, the probability of this scenario is quite low. It is more likely that Macron’s political position will decline, even if this is not to the point of preventing him from forming a new government,” said Erik-Jan van Harn, senior macroeconomic strategist at Rabobank.
“Mr Macron’s party suffered a significant setback in the European elections, and unfavorable results in the next election could exacerbate concerns about the country’s debt sustainability.”
