Safe-haven yen remained weaker on Friday as the Bank of Japan (BOJ) kept its monetary policy unchanged and its asset purchases at an annual rate of ¥80 trillion or almost $720 billion.
The bank maintained its interest rate at -0.1 percent as well as its ten-year Japanese government bond yield target at around zero.
BOJ said it expects Japan’s economy to keep on growing with simpler monetary conditions and fiscal stimulus through the government noting that inflation in the country stays in a waning phase.
Following the decision, JPY/EUR was down by 0.5 percent to 0.008043, JPY/AUD lost 0.7 percent to 0.011807 and JPY/CAD also declined by 0.7 percent to 0.011878.
If the yen extends its downtrend, it may possibly find support at about 126.00 against the euro, 114.00 on the dollar and 86.00 against the aussie.
BOJ remained its policy untouched by a 7-2 vote and said that upgrading its private consumption and overseas growth will help the developing economy.
The bank’s Governor Haruhiko Kuroda is expected to have a press conference at 3:30pm in Tokyo which may provide some hints for any likely changes to the bond-buying program and an exit from stimulus.
Investors also expect assurance from the bank that it was not rushing to follow the Federal Reserve’s (Fed) rate hike decision.
The greenback recovered after positive US economic data providing investors hope that US central bank will stick with its plan to raise rates.
USD/JPY gained 0.3 percent to 111.31 and is set for its biggest gain since week ended on May 5 while the US dollar index which tracks the greenback against a basket of currencies lost 0.1 percent to 97.31.
Any decline for the dollar/yen would be a sign of an opportunity to buy since BOJ is not even close to leaving their intense monetary policy.
It is for the reason that is according to analyst Ipek Ozkardeskaya, the bank remains considerably behind its leading G-10 peers to exit the stimulus.
USD/CAD edged down by 0.2 percent on Friday to 1.3227.
Mitul Kotecha said that the dollar was responding more positively Friday than it did on Wednesday after subdued US economic data that led the Fed announcement.
Fed raised its interest rates on Wednesday and also stated some preliminary information of its plan to start cutting its $4 trillion and above debt holdings.
Masafumi Yamamoto stated that the greenback seems to be recovering from its shock from the data release.
He also pointed out that the Federal Open Market Committee was somewhat hawkish presenting its plan for balance sheet cut earlier than expected and maintaining interest rate prospect unchanged even though market forecasts slowing in pace of rate hikes.
Provided that longer-term Japanese government bond (JGB) yields stay at zero percent by the bank, it could be expected that the movement of yen crosses to be determined mainly by its counterparts and not so much by the yen itself.
The exception to that would be times when risk reaction rules market moves as the currency is deemed as a safe-haven asset.
The dollar may have difficulty to post further gains as the RSI indicates that the rally can worn out as it has reached the 70 reading on Friday.