The dollar edged up against the yen on Tuesday after the Bank of Japan tweaked its growth forecast lower, although currency moves were small as investors waited for Federal Reserve Chair Janet Yellen's congressional testimony later in the session. The BoJ kept monetary policy steady as expected and trimmed its economic growth forecast for the current fiscal year to March 2015 to reflect soft exports and a slump in household spending after a sales tax increase.
BoJ Governor Haruhiko Kuroda will address the media at 0630 GMT. The dollar inched up about 0.1 percent to 101.62 yen, rising as high as 101.65 yen and remaining well off last week's seven-week low of 101.06 yen. The euro gained about 0.1 percent to 138.36 yen, solidly above last week's five-month low of 137.50 yen. Markets will be examining Yellen's remarks during her congressional appearances on Tuesday and Wednesday for clues on the timing of interest rate rises by the US central bank, after US data in the second quarter signalled the economy was gaining momentum.
Private-sector jobs and nonfarm payrolls growth in June were better than economists had expected and the unemployment rate fell to a near-six-year low of 6.1 percent. "We're not expecting any surprises from her, but if US yields fall on her remarks, the dollar could trend lower," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank. The benchmark 10-year Treasury yield stood at 2.541 percent in Asia, not far from Monday's US close of 2.549 percent. The dollar index was steady at 80.203, holding above a two-month low of 79.740 touched on July 1.
Comments from other Fed officials have implied that policymakers are in no rush to tighten, and many investors expect more of the same from Yellen. "Going into Fed Chair Yellen's Congressional testimony tomorrow, investors have bought the view that the Fed is on a steady-as-she-goes dovish course," Steven Englander, global head of G10 foreign exchange strategy at CitiFX, said in a note to clients.
"Most likely she will deliver as expected, but investors now take the dovishness for granted to a greater degree than they did in the past, so we will likely see a limited risk rally if all goes according to plan," Englander said. The Fed Reserve will still need to deliver "unusually accommodative" monetary policy even when the US economy returns to "where we want it to be", Yellen was quoted as saying in the New Yorker magazine's July 21 issue.
Later on Tuesday, US retail sales data for June could give more ammunition to economists predicting improved second-quarter economic growth. Economists expect retail sales to show a rise of 0.6 percent, up from 0.3 percent in May, according to a Reuters poll. The euro was steady at $1.3616, showing little reaction for now to comments from European Central Bank President Mario Draghi, who told European lawmakers that a strong currency could drag on a euro zone economic recovery.
Addressing a European Parliament committee in Strasbourg, Draghi reiterated that the ECB would stick to its accommodative monetary policy and might take unconventional steps against low inflation. The Australian dollar was treading water at $0.9395. Minutes of the Reserve Bank of Australia's latest meeting released earlier in the session indicated that it was likely to keep interest rates at record lows for some time yet, with policymakers citing uncertainty about whether stimulus alone would be enough to offset a cooling mining sector and government cutbacks.
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