The Japanese yen fell against the USA dollar to around the 102 level, having stood at about 101.50 before the central bank’s announcement.
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World stocks rose on Wednesday, led by a surge in bank shares, after the Bank of Japan overhauled its monetary policy to target interest rates, though the yen recovered initial losses against the dollar on scepticism those moves would stoke inflation. The BOJ also said it would continue quantitative easing until inflation “exceeds” 2%, effectively strengthening its commitment to continue its aggressive easing.
This includes keeping short term policy interest rates at -0.1 per cent, with the note that “the bank will cut the interest rates further if judged necessary”. But the yen bounced back to trade higher against the dollar and the euro in the European session.
“The last thing the Fed wants is to disrupt financial markets with a big surprise”, said Torsten Slok, chief worldwide economist at Deutsche Bank.
The Fed’s preferred measure of inflation remains low at 1.6 percent and has been below target for more than four years. So there is nothing in today’s announcement to make us turn suddenly yen bearish.
BOJ Governor Haruhiko Kuroda told reporters after the policy meeting that if the yield curve is too flat, it could hurt sentiment due to worries about the financial sector.
The Sensex was 0.54 percent higher at 28,677.30, after falling as much as 0.54 percent on Tuesday. Federal Reserve, the Bank of Japan has been trying to get consumers and companies to spend more. But the new framework made “investors feel how the BOJ is much more serious than before” in tackling slow growth and deflation, forcing some investors to unwinding their long yen positions, said Ishizuki.
However, Dewan noted the Fed decision is waited for further direction in markets.
Fed Chair Janet Yellen is scheduled to conclude the US central bank’s meeting with a press conference at 0200 pm ET (1800 GMT) on Wednesday.
Nevertheless, weaker-than-expected US economic data and subdued inflation and wage growth have prompted investors to call off bets for a Fed rate hike on Wednesday.
On Tuesday, data showed USA housing starts fell more than expected in August as building activity declined broadly after two straight months of solid increases.
It “may take time” for inflation to hit the target if inflation expectations are formed mainly based on past economic and prices situations, the BOJ said, emphasizing the importance of a forward-looking approach.
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Among G10 members – the G7 plus Belgium, Netherlands and Sweden – the Aussie and the New Zealand dollar are the best performing currencies this year, up 3.6 and 6.9 per cent respectively. “We continue to view the 100-105 range as likely to contain dollar/yen in the months ahead”.
