On Friday, the yen declined in value against the dollar as the Bank of Japan (BoJ) showed indications of maintaining its key yield control policy in the following week, according to a report by Reuters. This development comes prior to a hectic week of meetings involving central banks in the U.S. and Europe.
Date: July 22, 2023
Place- New Delhi, India
Insiders at the BoJ, totaling five, disclosed the bank’s inclination to examine further economic data to confirm sustained growth in wages and inflation before deciding on any alterations to the existing policy. Although no unanimous agreement has been reached within the bank, the final decision may be tightly contested.
Analysts, including Edward Moya from OANDA in New York, foresee the bank maintaining its current yield curve control and not amending rates, but potentially upgrading its inflation forecast slightly. Despite this, Moya warns of the possibility of unexpected outcomes and emphasizes the potential of the BoJ meeting to influence the market significantly, especially given the ongoing speculation of a policy shift due to inflation surpassing the BoJ’s target for more than a year.
Earlier data on Friday revealed Japan’s core inflation had increased to 3.3%, mirroring median market predictions but outperforming the BoJ’s target of 2%.
The dollar appreciated by 1.24% to 141.81 yen, peaking at 141.95 yen, the highest since July 10. The dollar’s current value hovers slightly below its June 30 high of 145.07 yen, the highest since November 10.
Against the Japanese currency, the dollar is projected to record its greatest weekly percentage gain since October, at 2.22%.
Kenneth Broux from Societe Generale predicts that the significant depreciation of the yen may push Japan’s finance ministry to publically intervene to bolster the currency. Japan’s top currency diplomat, Masato Kanda, mentioned on Friday that all strategies would be considered to address excessive volatility in the currency market.
In the coming week, central banks from the United States and Europe will hold meetings, with both the Federal Reserve and the European Central Bank anticipated to increase rates by 25 basis points. Market players will keenly watch for any signs from Fed Chair Jerome Powell post-Wednesday’s rate decision about future rate hikes.
The dollar index rose by 0.30% to 101.06, indicating its potential to record its largest weekly gain of 1.14% in two months against six key currencies.
The euro dipped 0.05% against the dollar to $1.1123, while the pound fell for the sixth consecutive day against the dollar to $1.2859, marking its longest losing streak since September last year. The pound, however, briefly rallied after data revealed stronger than anticipated consumer spending in the UK in June.
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Sources- The Print, Reuters, Economic Times
