Forex News
January 21, 2013 @ 10:14 am

Yen gains back losses versus dollar as focus turns to BOJ policy meeting

The dollar pulled back from a 2-1/2 year high versus the yen in early Monday trading. The yen gained back losses from most of its counterparts as the Bank of Japan two-day policy meeting began today.

The Japanese currency has been weakening recently due to expectations that the Bank of Japan will adopt further easing aimed at stimulating the world’s third-largest economy.

The central bank has been under pressure by Japan’s new government, led by the hawkish Shinzo Abe, to adopt a two-percent inflation target designed to tackle the deflation that has plagued the nation for years.

Investors are expecting the BOJ to fall in line with these demands and if the bank disappoints by not expanding the asset purchase program by more than 10 trillion yen this will push yen higher.

Abe’s pledges of more aggressive fiscal and monetary action triggered a 10 percent decline in the yen versus the dollar since mid-November. However last week, Japan’s Economy Minister Akira  Amari highlighted harmful effects of an excessive decline and caused the yen to rebound. However he then recanted his remarks and said he’d been misinterpreted.

Hence the BOJ’s job will not be easy and is facing a huge challenge because if the yen weakens too far  it could be harmful.

The dollar was initially stronger against the Japanese currency as soon as Monday’s Asian  session began but soon dropped to 89.40 yen, then proceed even lower in the early European session to 89.34. On Friday the pair finished the week at 90.08.  The euro also lost early gains to trade at 118.88 yen.

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