SINGAPORE: The yen fell on Tuesday after the Bank of Japan (BOJ) ended its negative interest rate policy in a monumental but highly anticipated decision, while the Australian dollar also slid after its central bank kept rates steady.
The Bank of Japan ended eight years of negative interest rates and other remnants of its unorthodox policy on Tuesday, putting an end to years of its ultra-loose stance.
The yen slid nearly 0.4% against the dollar in a knee-jerk reaction following the decision, as markets had largely priced in a shift prior to Tuesday’s outcome.
The euro similarly jumped 0.45% against the yen to 162.885, while sterling last bought 190.56 yen.
The BOJ also said at the conclusion of its two-day policy meeting that it will end its purchases of Japanese exchange-traded funds and reduce the amount of Japanese government bonds (JGBs) it will purchase.
Down Under, the Australian dollar extended its decline after the Reserve Bank of Australia (RBA) left rates unchanged, as expected, but watered down its tightening bias.
The Antipodean currency fell nearly 0.4% in the wake of the decision to $0.6535.
“Holding policy rates steady and policy guidance broadly unchanged seems like a reasonably straightforward decision in the presence of high uncertainty,” said Carl Ang, fixed income research analyst at MFS Investment Management.
Dollar dips, yen steady as BOJ policy shift beckons
The RBA said in its statement on Tuesday that “while there are encouraging signs that inflation is moderating, the economic outlook remains uncertain”.
Elsewhere, the New Zealand dollar fell to a one-month low of $0.6066 while sterling bottomed at a two-week low of $1.27135, owing to a broadly stronger dollar.
The euro was little changed at $1.0873, having also touched a two-week trough of $1.0866 in the previous session.
The greenback’s rebound has come on the back of a recent run of resilient US economic data pointing to still-sticky inflation, causing investors to adjust their expectations of the pace and scale of Federal Reserve rate cuts this year.
That comes ahead of the Fed’s policy decision due on Wednesday, where the focus will be on any clues on how soon the central bank could commence its rate easing cycle.
“We expect the FOMC to continue to show a three-cut baseline for 2024 at its March meeting and have lowered our own forecast to three cuts vs four previously in 2024,” said Goldman Sachs chief US economist David Mericle in a client note.
Against a basket of currencies, the dollar scaled a two-week top of 103.67.
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