The yen edged up to its strongest level against the dollar in nine days on Thursday ahead of trade talks between the United States and Japan and speculation over when the Japanese central bank will exit its ultra-easy monetary policy. Elsewhere in the currency market, the New Zealand dollar slid as its central bank staked out a dovish policy.
While markets are still on edge over the brewing trade war between the United States and China, traders expected the main event on Thursday to take place in Washington, where Japan will enter talks seeking to avert steep tariffs on its car exports and fend off US demands for a bilateral free trade agreement. The yen has fallen about 4 percent against the dollar over the past six months, raising speculation that its depreciation could be an issue in the talks as the Trump administration has raised concerns over countries deliberately weakening their currencies.
The yen had received a lift on Wednesday following the release of minutes from a July 30-31 BOJ board meeting that showed one member wanted to allow long-term yields to move in an even wider band than the range indicated by the central bank. In order to makes its easy policy more sustainable, the BoJ had tweaked its yield-curve control (YCC) scheme -under which it guides long-term rates around zero percent- and decided to allow the yield to move about 20 basis points on either side of the target. The kiwi tumbled after the Reserve Bank of New Zealand (RBNZ) on Thursday unexpectedly committed to keep interest rates at record lows through to 2020 on disappointing economic activity, a dovish turn that caught markets off-guard.
Its antipodean peer the Australian dollar fared better, last trading up 0.2 percent to $0.7449. The Aussie had risen for the past two sessions, supported in part as a recent retreat by the Chinese yuan stopped for the time being. Sterling was little changed at $1.2877 following a drop to $1.2854 the previous day, its lowest in a year. Against the yen, it slipped to an 11-month low of 142.34. The euro was a shade higher at $1.1616 after gaining about 0.1 percent on Wednesday. The single currency extended overnight losses to trade at 128.625 yen for a loss of 0.15 percent.