FOREX-Yen falls on BOJ’s resolute dovishness, raises intervention risk

By Rae Wee

SINGAPORE, Sept 22 (Reuters) – The yen fell on Friday after the Bank of Japan (BOJ) stuck to its ultra-easy policy stance just days after the U.S. Federal Reserve signalled a hawkish pause, piling pressure on the Japanese currency and raising the risk of an intervention.

At the conclusion of its two-day policy meeting, the BOJ kept ultra-low rates and its dovish guidance on future monetary policy, even as Governor Kazuo Ueda had earlier this month said the central bank could have enough data by year-end to determine whether it can end negative rates.

That sent the yen falling more than 0.4% against the dollar to a session low of 148.25. It last bought 148.09 per dollar.

“Anyone positioning for something new from the BOJ today, in the form of a less accommodative slant towards monetary policy, has been sorely let down,” said Joel Kruger, a currency strategist at LMAX Group.

“The yen is right back under pressure in the aftermath of the latest policy decision which produced a familiar recipe of maintaining the status quo. This sets the stage for additional yen declines in the days and weeks ahead.”

Data earlier on Friday showed Japan’s core inflation was steady in August and stayed above the central bank’s 2% target for a 17th straight month.

Speculation that Tokyo could intervene to support the yen gathered steam, particularly as the BOJ highlighted the necessity to “pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and price” in its statement.

“I think the FX weakness is becoming a priority,” said Moh Siong Sim, a currency strategist at Bank of Singapore.

Japan’s Finance Minister Shunichi Suzuki said on Friday he would not rule out any options on currencies, warning against a yen sell-off that would hurt the trade-reliant economy.

His comments came a day after the yen had fallen to a 10-month low on the back of higher U.S. Treasury yields, following a hawkish pause by the Fed on Wednesday that raised the likelihood of more restrictive U.S. rates for longer.

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NO END IN SIGHT

The U.S. dollar rode Treasury yields higher on Friday. Against a basket of currencies, the greenback gained 0.05% to 105.44, not far from the previous session’s six-month high of 105.74.

The 10-year U.S. Treasury yield peaked at 4.5080%, its highest since 2007, while the two-year Treasury yield was last at 5.1334%, after having scaled a 17-year top of 5.2020% on Thursday.

The Aussie rose 0.13% to $0.6425, though was headed for a weekly loss.

The New Zealand dollar edged 0.09% higher to $0.5937 and was eyeing a weekly gain of more than 0.5%.

While the Fed kept interest rates steady this week, it signalled the possibility of another hike this year, with rates to be kept significantly tighter through 2024 than previously expected.

“We like the U.S. dollar given this backdrop,” said Ray Sharma-Ong, investment director of multi-asset solutions at abrdn.

“The U.S. dollar will do well, supported by the hawkishness of the Fed, the reduction in the expected number of rate cuts the Fed will deliver in 2024, U.S. growth resiliency and our expectations of slower growth in the Euro area relative to the U.S.”

The euro declined 0.07% to $1.0654, having fallen to a six-month low of $1.0617 in the previous session.

Sterling was meanwhile 0.09% lower at $1.2284, having also slipped to a roughly six-month low of $1.22305 on Thursday, after the Bank of England (BoE) halted its long run of interest rate increases a day after Britain’s fast pace of price growth unexpectedly slowed.

“With inflation seemingly falling but still very elevated, and with growth almost stagnant, markets were likely going to find any decision fell short of what was needed, unless the bank was decisive in its hawkish stance, delivering a hike and guaranteeing more to come,” said Daniela Hathorn, senior market analyst at Capital.com.

(Reporting by Rae Wee; Editing by Christopher Cushing and Sonali Paul)