The yen holds on to gains as traders digest the surprise policy change from Reuters’ BOJ

©Reuters. FILE PHOTO: Japanese yen and US dollar banknotes are seen in this illustrative image taken on June 15, 2022. REUTERS/Florence Lo/Illustration

By Ankur Banerjee

SINGAPORE (Reuters) – The yen weakened somewhat on Wednesday but held on to most of its overnight gains against the dollar as traders reflected on Tuesday’s shock when the Bank of Japan adjusted its control over bond yields, a slight departure from their ultra-light monetary policy.

The BOJ decided to let long-term yields move 50 basis points either side of its 0% target, which is wider than the previously imposed 25 basis point range, although it left broad policy stances unchanged.

On Wednesday, the yen weakened 0.34% against the greenback to 132.15 per dollar, but was not far off a four-month high of 130.58 per dollar, which it hit on Tuesday when it was up 4%.

The currency market is still digesting the BOJ’s monetary policy changes, said Carol Kong, a currency strategist at the Commonwealth Bank of Australia (OTC:).

“The market has interpreted the decision as a step towards an eventual reversal from the current ultra-dovish monetary policy,” she said, adding that the yen could continue to appreciate in the near term.

The BOJ’s decision comes as investors fret over a slowing global economy, skyrocketing inflation and actions by other central banks to raise interest rates.

It is also coming into a year in which the yen has been exceptionally volatile, with Japanese authorities entering the market in September to support it for the first time since 1998 and again in October when it fell to a 32-year low of 151, 94 weakened per dollar.

BOJ Governor Haruhiko Kuroda, who is set to step down in April, stressed the adjustment is not a prelude to a major shift in yield curve control policy and an eventual exit from ultra-loose monetary policy.

According to analysts at Goldman Sachs (NYSE:), the next policy decision the BOJ makes will likely be a major one, like changing long/short term interest rate targets or ending yield curve control entirely.

Junichi Inoue, head of Japanese equities at Janus Henderson Investors, said there is likely to be some volatility in the near term. But he expects the BOJ decision “will be very positive for (the) overall market as it will eliminate inappropriate prices” like the yen at 150 per dollar.

The , which measures the greenback against the yen and five other major currencies, was 0.154% higher to 104.110 after falling 0.6% on Tuesday. The index is heading for its biggest quarterly loss in almost 12 years.

The euro fell 0.13% to $1.0607, while sterling was last traded at $1.2164, down 0.14% on the day.

The Australian dollar fell 0.21% to $0.666, while the Australian dollar fell 0.61% to $0.631. Antipodean currencies wobbled after suffering big losses against the yen as rising Japanese yields threatened to crush inflows into normally crowded carry trades.

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Currency bid prices at 0443 GMT

Description RIC Last US Close Pct Change YTD Pct High bid Low bid

previous change

meeting

Euro/Dollar $1.0608 $1.0623 -0.14% -6.69% +1.0628 +1.0608

Dollar/Yen 132.2500 131.6650 +0.32% +14.84% +132.3050 +131.6800

Euro/Yen 140.31 139.88 +0.31% +7.67% +140.5000 +139.6900

Dollar/Swiss 0.9285 0.9263 +0.21% +1.77% +0.9285 +0.9265

Sterling/Dollar 1.2162 1.2188 -0.19% -10.06% +1.2192 +1.2164

Dollar/Canada 1.3618 1.3613 +0.03% +7.70% +1.3618 +1.3590

Aussie/Dollar 0.6664 0.6680 -0.21% -8.30% +0.6697 +0.6657

New Zealand 0.6307 0.6346 -0.58% -7.82% +0.6350 +0.6308

dollars/dollars

All spots

Tokyo spots

Europe Spots

volatilities

Tokyo Forex Market Information by BOJ