The yen set an 18-month high against the dollar on Friday, staying firm in the wake of the Bank of Japan’s decision the previous day to hold off from expanding its monetary stimulus.
The dollar’s drop gained momentum after it breached a low of 107.63 yen set earlier in April. Momentum and technicals probably played a part in exaggerating moves, traders said.
“I think a combination of follow-through from yesterday’s BOJ decision plus the softer dollar tone has weighed on dollar/yen as well,” said Mitul Kotecha, head of Asia FX and rates strategy for Barclays in Singapore.
“There’s very little to stop dollar/yen continuing to trade lower especially given the dollar itself has really lost a lot of momentum,” he added.
Dollar vs yen
The dollar slid to as low as 107.075 yen, the greenback’s weakest level since October 2014. The dollar was last trading at 107.19 yen, down 0.8 per cent on the day, following on from a 3.0 per cent fall on Thursday.
A key theme for the yen is whether the BOJ’s decision to stand pat on Thursday is just a wait-and-see stance by the central bank, or whether it means the bar will be higher for any further stimulus, said Stephen Innes, senior trader for FX broker OANDA in Singapore.
“Obviously, if anybody sides with the ineffectiveness of the current monetary policy and the likelihood that the bar is going to be pushed higher for any further easing, it doesn’t bode well for dollar/yen recovery,” Innes said.
On Thursday, BOJ Governor Haruhiko Kuroda had left the door open for more stimulus, stressing there were no limits to what monetary policy can do to address strong risks to the economic and inflation outlook.
Euro vs yen
The yen also pushed higher against the euro, which fell 0.6 per cent to 122.13 yen. On Thursday, the euro had shed 2.7 per cent versus the yen.
The force of the yen's gains are likely to make Japanese policymakers uneasy, and analysts were watching out for any efforts by Japanese officials to talk the currency down. Japanese financial markets were shut on Friday for a public holiday.
“Outright intervention remains unlikely unless price action gets truly disorderly,” analysts at BNP Paribas wrote in a note to clients.
“However, we would expect MOF officials to continue to signal that intervention is available to counter disorderly moves and for BOJ officials to remind markets of their willingness to ease further.”
US economic growth
Not helping the greenback, data released on Thursday confirmed what many already suspected, that U.S. economic growth nearly stalled in the first quarter. The economy grew at a paltry 0.5 per cent annualised pace, braking sharply from 1.4 per cent.
Given that backdrop, the Federal Reserve might be in no hurry to deliver the next hike in rates, traders said.
Underscoring the dollar’s soft tone, the euro rose 0.4 per cent to $1.1393.
The Australian dollar gained 0.5 per cent against the greenback to $0.7663.
China’s official survey on manufacturing activity due on Sunday should set the tone for early next week.