TOKYO: The Japanese yen tumbled on Tuesday after the Bank of Japan (BoJ) made a smaller tweak to its bond yield control policy than some investors had been expecting and says it will patiently maintain accommodative policy.
The US dollar gained 1.7% on the yen on Tuesday, its biggest daily gain since April, and hit a one-year high of 151.66 yen.
It is closing in on 2022’s 151.94 yen, a break past which would take it to its highest since 1990.
The euro hit a 15-year high of 160.83 yen on Tuesday.
The 10-year Japanese government bond yield reached its highest levels in a decade around 0.95% on Tuesday.
Helen Given, a forex trader at Monex USA in Washington said: “Our take is that it’s too little too late.
“The only thing that’s really going to be effective in bringing down those yen prices at this point is an actual interest rate change from the Bank of Japan.
“Since they didn’t do that yesterday, the yen is going to keep sliding until it happens.”
Erik F. Nelson, a macro strategist at Wells Fargo, London, said: “The BoJ tweak has kind of been telegraphed both last week and yesterday.
“The other thing to bear in mind is that the forward guidance was unchanged and their inflation forecast still has core inflation below 2% at the end of its forecast horizon.
“So yes, they did tweak policy, but it was not accompanied by a hawkish change in forward guidance on policy rate and there is a 40-basis-point hike being priced now.
“The market was anticipating a more hawkish decision from the BoJ than what they got.”
Marc Chandler, chief market strategist at Bannockburn Global Forex in New York said: “In broad strokes it seems that this is another step towards an exit.
“We can see what the market’s done, right? It puts the BoJ even in a more difficult position to intervene in the foreign exchange market.
“There’s nothing magical about 152, especially if it’s in conjunction with a sharply higher US dollar like it is today. It wouldn’t surprise me if we don’t go beyond 152, maybe it’s 155.
“The problem is that the Japanese economy is very weak. Why didn’t the BoJ act more forcefully? Because their assessment of the economy is austerity.”
Min Joo Kang, senior economist South Korea and Japan at ING, South Korea, said: “A disappointingly modest adjustment to the BoJ’s yield curve control strategy has seen USD and JPY push back above 150.
“It seems like the BoJ did not want to risk a Japan government bonds market meltdown by opting for larger steps today.
“Unless US data softens sharply or the Fed surprises by dropping its hawkish bias, it looks like the US dollar can push onto the 152 yen area, marking last October’s intra-day spike high.
“Depending on how the US dollar gets to 152 yen – quickly or in a slow grind – this will probably determine how quickly Japanese authorities intervene.
“We think that Japanese authorities, like the Chinese authorities, are praying for a turn in the US dollar to take pressure off their own currencies.”
Karl Schamotta, chief market strategist at Corpay in Toronto, Canada, said: “Currency traders unquestionably have their knives out for the yen after last night’s dangerously-ambiguous policy change from the BoJ.
“With major unknowns remaining around the central bank’s reaction function, and another raft of stronger-than-expected data helping boost US yields, rate differentials are tilting more aggressively against the yen as the session unfolds.
“A disorderly slide lower could trigger renewed intervention efforts, and implied volatility is surging as investors buy insurance against the possibility.
“But trading ranges are still well-contained and realized volatility levels remain relatively low. The exchange rate may have to fall further before the Finance Ministry feels forced to step in.” — Reuters