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The yen edged up against the US dollar on Tuesday as investors braced for the highly-anticipated policy decision later in the day from the Bank of Japan. The dollar was 0.1 per cent lower at 110.93 yen, with markets preparing to see whether the Japanese central bank is considering steps to tweak its massive stimulus programme to make it more sustainable.
The changes, although likely to be small, would be the first since 2016 and would mark the latest sign Governor Haruhiko Kuroda is gradually walking away from his radical stimulus programme deployed five years ago to shock the public out of deflation.
The BOJ has conducted a special bond-buying operation three times this month to stem rising bond yields amid growing expectations it could adjust its policy. “Looking at the JGB 10-year yield, it seems that the markets are gradually pricing in the possibility of the policy changes this week,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. “If there is no concrete outcome this time, the BOJ will order the BOJ staff to consider measures to mitigate the negative consequences from the past accommodative policy by the next meeting.”
The dollar has eased more than 2 per cent since hitting a six-month peak of 113.18 yen on July 19, following speculation the BOJ was gearing up to tweak its policy. Against other major currencies, the greenback was barely changed in early trading on Tuesday.
The dollar index, a measure of its value against a basket of six major currencies, was nearly flat at 94.339, off a one-year high of 95.656 touched on July 19. The euro was flat at $1.1707 after rising nearly half-a-percent the previous day, as it recovered from its worst weekly performance against the dollar in six weeks.
Besides the BOJ, investors are keeping tabs on the US Federal Reserve, which is finishing its policy meeting on Wednesday. The Fed is not expected to raise interest rates this week. The Bank of England, which is widely expected to hike interest rates on Thursday for the second time since the 2008 financial crisis, was also in focus.
On Tuesday, the pound was a tad higher at $1.3138. The Australian dollar traded up 0.05 percent at $0.74115.
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