The yen inched up to its strongest level against the dollar in nine days prior to the trade talks between the United States and Japan. There were also generous amount of speculations over the time when the Bank of Japan will end its ultra-easy monetary policy.
Meanwhile, the New Zealand dollar dipped as the country’s central bank staked out a dovish policy.
The markets are still feeling jittery over the simmering trade war between the United States and China, while traders await the main event on Thursday to be held in Washington, where Japan we hold talks seeking to sidestep large tariffs on its car exports and fend off US demands for bilateral free trade agreement.
The yen has dipped about 4 percent against the dollar over the past six months, fueling speculations that its depreciation could be an issue in the discussions as the Trump administration has already raised worries over countries deliberately weakening their currencies.
Further, the yen had had some boost on Wednesday after the release of minutes from a July 30 to 31 BOJ board meeting, showing that one member pushed for the enablement of long-term yields to move in a wider band than the range currently indicated by the central bank.
With the goal of making its monetary policy more sustainable, the Bank of Japan had tweaked its yield-curve control scheme, which it uses to guide long term rates around zero percent. It then decided to allow the yield to move about 20 basis points on either side of the target.
For some, last week’s policy tweak was a signal of quiet surrender of the BOJ, admitting that it couldn’t stoke inflation.
“The yen-buying trend has been gathering pace since early August and the moves generated on the latest BOJ news added further momentum,” stated Junichi Ishikawa, who is a senior FX strategist at Tokyo-based IG Securities.
The speculation about the time of the awaited exit from the BOJ’s ultra-easy policy and cautious stance ahead of trade talks have pushed the Japanese currency to strengthen to 110.74 yen to the dollar, which is its strongest in 9 days.
“It is a continuation of the unwinding of short positions made previously against the yen. But it still remains to be seen if there will be participants willing to begin going long on the yen once the short covering peters out,” stated Koji Fukaya, who is the president of FPG Securities in Tokyo.
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