The yen held firm against the dollar on Thursday, clinging to its recent gains after a Bank of Japan deputy governor gave few fresh clues on whether the central bank will expand its monetary stimulus this month. Analysts said the comments by BoJ Deputy Governor Hiroshi Nakaso seemed broadly similar in tone to remarks by BoJ Governor Haruhiko Kuroda earlier this week, in which Kuroda acknowledged the costs of the BoJ's aggressive stimulus.
Nakaso said on Thursday the central bank will pursue its massive stimulus programme by striking the right balance between its powerful policy effects and potential adverse effects on financial intermediation. The dollar fell to as low as 101.41 yen after Nakaso's comments but later pared its losses. The dollar last stood at 101.65 yen, down 0.1 percent on the day and not too far from Wednesday's low of 101.20 yen, which was the dollar's lowest level since August 26. For the week, the dollar has fallen about 2.2 percent.
"The main message doesn't seem all that different ... The general tone of weighing the costs and benefits were in Governor Kuroda's comments as well," said Shinichiro Kadota, senior FX and yen rates strategist for Barclays in Tokyo.
"As the market reaction suggests, I don't think it was anything that leads to any big change to the outlook," he added. The dollar has been under pressure since Friday's slightly disappointing jobs report and a surprisingly soft service sector survey on Tuesday cast doubt about the Federal Reserve's ability to raise interest rates soon despite hawkish rhetoric from Fed officials.
Moreover, investors have been bracing for a potentially underwhelming policy announcement from the BoJ on September 21, when it is expected to unveil the results of a comprehensive policy review it promised in July. While many investors expect the BoJ to announce additional easing steps, there is no clear consensus on what the central bank will do given the widespread belief in markets that the BoJ's stimulus is nearing its practical limit.
Even if the BoJ were to expand its stimulus, it is hard to imagine it doing so in a way that will trigger a sustained drop in the yen, said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo. "But at the same time, it is possible that they could come out with something totally unexpected," he said, adding that this uncertainty makes it difficult to place aggressive bets on the yen rising against the dollar at this point.
The euro edged up 0.1 percent to $1.1251 but remained below Wednesday's high of $1.12725. Investors are focusing on whether the European Central Bank would decide to extend its asset purchase programme and tweak the parameters to ease supply scarcity issues, at its policy meeting later in the day. On top of this, the ECB's bond buying is also facing an increasing hurdle because the pool of bonds, especially German Bunds, it can buy is dwindling. "I suspect they will try to dispel the notion that its easing is near the limit. But I'm not sure it is ready to take action today," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank. Data showing that China's imports unexpectedly rose in August for the first time in nearly two years helped lend support to the Australian dollar, which edged up 0.2 percent to $0.7689.
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