The dollar enjoyed a short-lived rise against the yen on Thursday after the Bank of Japan refrained from easing policy but made a technical change to its asset buying programme. The BoJ stood pat as expected, despite moves in that direction last week by central banks in the euro zone, Britain and China.
It held its key policy rate in a range of zero to 0.1 percent by a unanimous vote, though it did tweak its asset-buying and lending programme. Japan's central bank maintained the total size at 70 trillion yen ($879 billion) but pledged to buy more short-term securities while reducing the amount it offers under fixed-rate market operations.
"The BoJ was widely expected not to do anything at all, and when they did something, there was an initial reaction to it, but the move was short-lived as the forex market assessed the net effect of the bank's technical changes," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo,
The greenback shot up as high as 79.97 yen after the BoJ's decision was announced, but just as quickly erased the move and was last trading at 79.47 yen, about 10 ticks below its level before the announcement.
Technical support was said to lie at its 200-day moving average at 79.01 yen, but the dollar was still well shy of its June 25 high of 80.63 yen, with Japanese exporters poised to sell on any move around 80 yen, traders said.
The euro remained under pressure against the dollar, trading at $1.2242. It tumbled overnight to a two-year low of $1.2212 on the EBS trading platform after minutes of last month's US Federal Reserve meeting revealed that the economy would have to worsen further before the Fed took any more easing steps.
The euro has fallen about 5.5 percent so far this year, already exceeding losses chalked up in 2011, when it declined more than 3 percent.
Adding to investor uncertainty about Europe's progress to address its debt crisis, it appeared there would be no quick judgement from a German court on the euro zone's bailout fund. In Spain, anti-austerity protests in Madrid turned violent after that country unveiled new measures to slash 65 billion euro from the public deficit by 2014 as Prime Minister Mariano Rajoy yielded to EU pressure to attempt avoiding a full state bailout.
Europe's continuing woes and the Fed minutes helped send the dollar index soaring to a two-year high of 83.610 overnight, though it eased slightly to 83.497 in Asia.
The dollar index could move for a test of its 2010 peak at 88.71, while the euro dropped towards 1.20 in the near term, traders said. The Australian dollar tumbled after data showed an unexpected drop in Australian employment in June, adding to concerns about its economic outlook prompted by a slowdown in China, Australia's biggest trading partner.
The Australian dollar was last down 0.8 percent from late US trade on Wednesday at $1.0166, down from around $1.0240 just before the data were released, as investors priced in a greater chance of further interest rate reductions. The Reserve Bank of Australia (RBA) cut rates in both May and June to take them to 3.5 percent, but held steady at its July meeting.
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