Dollar falls against yen after Japan stops short of extra QE

The US dollar tumbled against the yen on Friday after the Bank of Japan tweaked its monthly asset-purchase program in a way that traders viewed as minor, suggesting that the central bank may not ease policy as much as expected. The BoJ set up a program to buy exchange-traded funds, extend the maturity of bonds it owns to around 12 years and increase purchases of risky assets. The adjustment hurt the dollar against the yen, since traders viewed it as an indication that the BoJ may be less likely to ease monetary policy further.
-- Euro rises vs dollar in volatile trading
-- Dollar index off two-week highs
The dollar has gained against the yen this year on the view that the Federal Reserve's tilt toward higher rates and the BoJ's path of more potential stimulus would support the greenback since it would drive more investment flows into higher-yielding US assets. "The fact that when they do something, they do very little, shows that they are not really willing to step up monetary easing," said Jose Wynne, global head of FX research at Barclays in New York, in reference to the BoJ's move.
The dollar, which had hit a more than two-week high of 123.590 yen shortly after the announcement, was last down about 1 percent against the yen at 121.290 yen. The dollar was still on track to post a modest percentage gain against the yen for the week. The euro rose slightly against the dollar, but analysts said the move was attributable to thin holiday trading rather than traders making bets on the fundamental outlook for the currency.
"After the FOMC... a lot of investors have just sort of closed shop for the year or dialed down their trading activity," said Ian Gordon, FX strategist at Bank of America Merrill Lynch in New York. He was referring to the Fed's first rate hike in nearly a decade on Wednesday. The euro was last up 0.32 percent against the dollar at $1.08600. The US dollar index, which measures the greenback against a basket of six major rivals, was last down 0.54 percent at 98.723 after hitting a two-week high of 99.294 on Thursday.
The euro was set to post its biggest weekly percentage drop against the dollar in four weeks, while the dollar index was on track to notch its biggest weekly percentage gain in a month and a half. The dollar was last down 0.37 percent against the Swiss franc at 0.99290 franc.