The dollar rose to near a three-week high against the yen on Thursday, as a surprise decision from the Bank of England and expectations of stimulus from the Bank of Japan returned risk appetite to markets. The Bank of England announced it would not provide additional stimulus while signalling it stood ready to do so next month. That combined with anticipation that the Japanese government could launch a 10 trillion yen fiscal stimulus program to coincide with further easing from the BuJ boosted sentiment toward riskier assets.
The yen sank across the board as the upbeat mood on global stock markets stretched into a sixth day and media reports stoked speculation the Bank of Japan could take steps to fund government spending directly. The Japanese currency fell near 106 yen per dollar and past 140 yen per pound, with dealers citing a Bloomberg report saying ex-Federal Reserve chief Ben Bernanke had raised the prospect of the BoJ issuing perpetual bonds.
An adviser to Japanese Prime Minister Shinzo Abe poured cold water on the idea in an interview with Reuters published after the Bloomberg story and government sources later outright denied they were being considered. Sterling jetted higher against the yen, the dollar and the euro after the Bank of England decision. "In terms of the big theme, we're seeing a little bit of confidence in the overall market," said Scott Smith, senior corporate FX trader and market analyst at Cambridge Global Payments. The dollar index, which tracks the dollar against six major currency rivals, was flat at 96.239 after falling following the BOE decision.