By Ankur Banerjee
SINGAPORE (Reuters) – The U.S. greenback steadied on Wednesday, whereas the yen slipped as traders eagerly awaited the Bank of Japan’s coverage determination, which might set the stage for Tokyo to finish its ultra-easy financial coverage.
The central financial institution surprised the market final month by elevating its cap on the 10-year yield to 0.5% from 0.25%, doubling the band it might allow above or under its goal of zero. Since then, hypothesis has swirled that the BOJ was more likely to tweak its yield curve management (YCC) coverage additional.
The Japanese yen weakened 0.56% versus the dollar at 128.83 per greenback on Wednesday, easing off the seven month excessive of 127.25 it touched on Monday. The greenback index, which measures the safe-haven greenback in opposition to six friends, was flat at 102.400.
Kristina Clifton, a senior economist and senior forex strategist at Commonwealth Bank of Australia, mentioned the assembly is more likely to lead to giant volatility in forex markets, mentioning {that a} dovish stance might see greenback/yen surge by 2‑5 yen.
“By distinction any coverage tweak could once more be interpreted by markets as a step in the direction of coverage normalisation, pulling greenback/yen decrease, doubtlessly sharply decrease,” Clifton mentioned.
The 10-year yield on Japanese authorities bond breached the BOJ’s ceiling for 3 straight periods to Tuesday, resulting in a wave of emergency bond shopping for by the federal government. [JP/]
Some traders are betting the BOJ might be pressured to regulate, and even dismantle, YCC as early as this week on the view the central financial institution can’t maintain the huge quantity of bond shopping for wanted to defend the cap.
“The strain on the JGB market in current weeks alongside the prospect of rising Japanese inflation leads us to conclude that the BOJ will ship a robust sign that the tip of YCC is nigh,” mentioned National Australia Bank strategist Rodrigo Catril in Sydney.
“If the Bank retains its YCC band unchanged, that is more likely to come alongside the dedication of extra JGB buy however given market strain we suspect that at a minimal the Bank should give a robust sign {that a} shift in coverage is coming imminently.”
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Meanwhile, sterling was final buying and selling at $1.2274, down 0.11% on the day, whereas the euro was down 0.03% to $1.0785.
The Australian greenback fell 0.04% at $0.698, whereas the kiwi rose 0.03% versus the U.S. forex at $0.643.
(Reporting by Ankur Banerjee in Singapore; Editing by Sam Holmes)
