Yen gains in Europe as BoJ keeps policy steady

16 Mar, 2016

The yen rose more than half a percent against the dollar on Tuesday, helped by an oil price weakening which sent investors in search of traditional safe havens and by a neutral message from the Bank of Japan on rates.
The other big mover was sterling, down 1 percent against the euro and dollar after a Daily Telegraph poll showed the campaign for Brexit from the European Union nosing in front in the run-up to a June referendum.
Six weeks after shocking markets by cutting rates to negative, Governor Haruhiko Kuroda said the Bank of Japan would take time to look at the impact, but could move again before the cut had worked its way fully into the economy.
While the yen has gained further since the cut in January, it drew some support from the absence of an explicit threat to reduce rates again. Of as much impact was the fall in oil prices and a resulting downbeat start for European stock markets.
"On the days when we are 'risk on', the yen holds strong and on days like today, it gains," said Derek Halpenny, European head of global market research at Bank of Tokyo Mitsubishi.
"Certainly Kuroda was keen to leave open the potential for further moves but it was probably too much to expect him to be explicit at this stage."
The dollar fell 0.7 percent to 113.05 yen, while the euro slipped about 0.6 percent to 125.62 yen. The dollar rose as high as 121.70 yen on January 29, immediately after the BOJ's announcement, but has since shed more than 6 percent.
Next up is the US Federal Reserve, which begins its two-day meeting on Tuesday.
A firming of price measures and solid readings from other US data have rekindled market expectations of further tightening this year, and any sign that could still happen in the first half would be liable to aid the dollar, Halpenny said.
Retail sales data on Tuesday will provide another indication of the strength of the US economy.
"We stay of the view that further improving US growth conditions keep the Fed in a position to tighten monetary policy further this year," analysts from Credit Agricole said in note.
"From that angle we believe that dollar dips should still be bought, for instance against the Swiss franc." The euro edged down slightly to $1.1094, just over a cent off last week's one-month high of $1.1218.
Its 4-cent rally after the European Central Bank announced further steps to ease policy last Thursday was the latest blow to the handful of major banks still calling for a strong fall past parity with the dollar.
One of the ultra-bears, Deutsche Bank's George Saravelos, acknowledged on Tuesday there would be some slippage in his targets for euro depreciation this year, but stuck to predictions of a fall to 85 cents in 2017.
"The change in ECB emphasis away from rate cuts leads us to push out our $1.00 forecast to year-end from late-summer," he wrote in a note to clients.
"But we're not changing our overall directional bias and still believe the next big move in the euro is down."

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