Dollar hits 15-month low vs. yen

Asian Stock Markets

The dollar extended its losses against the yen and hit a fresh 15-month low on Thursday, with market participants bracing for further near-term weakness in the U.S. currency. 

The dollar dropped below Wednesday’s nadir of 106.725 yen and fell as low as 106.42 yen, its weakest level since November 2016. That marked a drop of 3.7 percent from its early February peak near 110.50 yen.

The U.S. currency later pared some of its losses and was last down 0.3 percent at 106.67 yen. 

”There’s nothing specific, it’s just a continuation of dollar selling that we’ve seen everywhere overnight, said Tareck Horchani, head of sales trading in Asia Pacific for Saxo Markets in Singapore. 

Traders and analysts said the next support level for the dollar was around 105 yen. 

Some market participants said speculative buying of the yen initially helped drag the dollar lower, with stop-loss dollar selling later adding to the fall against the Japanese currency. 

On Wednesday, the dollar gained a lift after a stronger-than-expected rise in U.S. consumer prices in January bolstered bets that the Federal Reserve might raise interest rates four times in 2018. 

But that gain for the dollar proved short-lived, and the greenback ended up retreating broadly against major peers despite the change in expectations for U.S. interest rates. 

In Thursday’s Asian trade, the euro edged up 0.1 percent to $1.2459, after gaining 0.8 percent on Wednesday. 

Sterling was steady at $1.4004, after also having risen 0.8 percent the previous day. 

In the wake of the dollar’s sharp drop against the yen over the past couple of weeks, there was increased focus on whether Japanese exporters and Japanese investors would step up moves to hedge their exposure to the U.S. currency. 

Japanese Finance Minister Taro Aso said on Thursday that he doesn’t see current yen moves as being so strong or weak that would warrant intervention, adding that there was no plan now to respond to FX moves.

Nikkei hits fresh 26-year high; BOJ trims bond buying

Asian Stock Markets

Asian shares edged higher on Tuesday, approaching record highs, while the yen stole the currency spotlight and jumped after the Bank of Japan’s slight reduction to its bond purchases reminded investors that it will eventually normalise policy. 

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent at 590.89, not far from its record peak of 591.50 scaled in November 2007.

On Wall Street on Monday, the Dow Jones Industrial Average .DJI edged down 0.05 percent, the S&P 500 .SPX gained 0.17 percent, and the Nasdaq Composite .IXIC added 0.29 percent. After the best start to a year in more than a decade, investors turned cautious ahead of earnings.

South Korea's share market .KS11 added 0.2 percent, with gains capped after Samsung Electronics Co's (005930.KS) guidance fell short of market expectations despite a forecast for a record fourth-quarter profit, as a strong won and one-off staff bonuses took the shine off surging DRAM chip prices. Samsung's shares slumped 1.9 percent.

The MSCI tech index for Asia .MIAS0IT00PUS was flat, after gaining more than 5 percent this year.
Japan's Nikkei stock index .N225 added 0.5 percent, paring its gains after the yen surged. It earlier touched its highest levels since November 1991, catching up to the previous session's gains as markets reopened after a holiday on Monday.

Against the yen, the dollar erased its early modest gains and fell 0.4 percent to 112.63 JPY= following a drop as low as 112.50, after Japan's central bank trimmed its purchases of Japanese government bonds (JGBs).

Since it adopted the yield curve control policy in 2016, the BOJ has made similar tweaks to its JGB purchases, which are regarded as mainly technical moves. On Tuesday, it cut its JGB purchases of 10 to 25 years left to maturity and those of 25 to 40 years to maturity by 10 billion yen ($88.39 million) each, from its previous operations for those zones.

While the central bank’s operational adjustments do not usually have an impact on foreign exchange markets, dealers said the timing of the move suggested some players had used it as an excuse to sell the dollar and the euro against the yen.


The euro was steady at $1.1969 EUR=, shy of its nearly four-month high of $1.2089 set on Thursday. Against the yen, it skidded 0.3 percent to 134.85 EURJPY= The dollar index, which tracks the greenback against a basket of six major rival currencies, edged down 0.1 percent to 92.269 .DXY.

Underpinning the dollar, investors bet on further U.S. interest rate hikes after Friday’s payrolls data did nothing to challenge the outlook for monetary policy tightening by the U.S. Federal Reserve. While job growth slowed more than expected, a pick-up in monthly wages pointed to labour market strength.

But the dollar’s upward momentum was tempered as investors differed on the pace of tightening while U.S. inflation remains relatively cool.

U.S. crude CLc1 rose 49 cents, or 0.8 percent, to $62.22 a barrel, while Brent crude LCOc1 added 44 cents, or 0.7 percent, to $68.22.

Spot gold XAU= was down 0.2 percent at $1,318.11 an ounce, pulling back from a 3-1/2-month high hit last week. [GOL/]

BOJ keeps policy steady, board newcomer signals desire for easing

The Bank of Japan kept policy settings steady on Tuesday but a board newcomer called for clearer commitment to ramp up stimulus if necessary, potentially complicating future efforts by the central bank to dial back its massive monetary support.

With inflation still distant from his 2 percent target, BOJ Governor Haruhiko Kuroda stressed that he saw no immediate need to exit its ultra-easy policy even as other major central banks have started to unwind their crisis-era monetary programs. 

Acknowledging the rising costs and diminishing returns of his stimulus program, however, Kuroda signaled the chance of slowing the BOJ’s exchange-traded fund (ETF) buying before embarking on a full-fledged withdrawal of stimulus. 

“When adjustments to our framework become necessary, they don’t need to involve everything in the BOJ’s framework. Our (ETF) purchases focus on affecting risk premium, so we will take that into account in making a decision,” Kuroda told a briefing. 

The remarks came after the BOJ’s widely expected decision to maintain a pledge to guide short-term interest rates at minus 0.1 percent and 10-year bond yields around zero percent. 

Newcomer Goushi Kataoka voted against keeping policy steady for the second straight meeting, arguing that the BOJ should make clear its readiness to expand stimulus again if domestic factors delay achievement of its price target.

While not an official proposal for easing, the former private economist also said the BOJ should buy government bonds so 15-year yields “remain at less than 0.2 percent”. The 15-year government bond yield stood around 0.307 percent on Tuesday. 

The dissent by Kataoka could complicate the BOJ’s efforts to follow in the footsteps of its U.S. and European counterparts in withdrawing stimulus, analysts say.

BOJ's next challenge - unwinding Kuroda's legacy stimulus

For Bank of Japan Governor Haruhiko Kuroda, Sunday’s general election has brought into focus the challenge of unwinding a massive stimulus programme and yield curve control policy, while not hurting a budding but still fragile economy, the world’s third-largest.

With inflation far below a 2 percent target, the BOJ rules out any near-term exit from Kuroda’s legacy ultra-easy policy. 

But there’s growing alarm within the central bank about how long it can keep the money spigot open, given the rising costs and diminishing returns, people familiar with BOJ thinking say. 

Most of the BOJ’s nine board members and bureaucrats involved in drafting monetary policy feel the next step - though some way off - would be to roll back Kuroda’s radical monetary experiment, with the economy in recovery-mode, they say. 

The political tide is shifting in favour of at least having such a debate. 

Several ruling Liberal Democratic Party (LDP) heavyweights have warned of the rising cost of prolonged monetary easing. Opposition parties, including the new Party of Hope led by popular Tokyo Governor Yuriko Koike, want a departure from over-reliance on monetary policy.

BOJ bureaucrats are drafting a plan. The trick is to retreat from crisis-mode stimulus without giving the impression the bank is embarking on outright monetary tightening. 

Already, the BOJ is proceeding with the first stage of the plan - by whittling down its vast bond purchases to an annual pace of around 50 trillion yen ($443 billion), below a loose pledge to keep it at around 80 trillion yen. 

The next step would be to allow long-term interest rates, which the BOJ has capped at around zero, to rise, more reflecting improvements in the economy, the sources say. The bank could raise the bond yield target or shift it to the shorter end of the curve even before inflation hits 2 percent, as it can maintain easy monetary conditions with its strong balance sheet.

STERLING RESURGENT

The seismic shift in rates saw sterling hit its highest since the Brexit vote and notch its best week in almost nine years against a currency basket.

On Monday, the pound was a shade softer at $1.3585 GBP= but not far from the peak of $1.3615. The euro was steady at $1.1945 EUR=, sandwiched between support at $1.1836 and resistance at $1.2092. 

The dollar held firm on the yen at 111.21 JPY=, with the Bank of Japan widely expected to maintain its massive asset buying campaign at a meeting on Thursday. 

Political uncertainty also made a surprise appearance after sources said Japanese Prime Minister Shinzo Abe was considering calling a snap election for as early as next month to take advantage of his improved approval ratings and disarray in the main opposition party. 

Against a basket of currencies, the dollar was idling at 91.851 .DXY and still uncomfortably close to the recent 2-1/2 year trough of 91.011. 

The modest bounce in the dollar combined with all the talk of monetary tightening put gold on the defensive. The precious metal was little changed at $1,318.96 an ounce XAU=. 

Oil prices were hovering near five-month highs helped by forecasts for rising demand and the gradual restart of U.S. oil refineries. 

Brent crude LCOc1 was up 2 cents on Monday at $55.64 a barrel, following gains of 3.3 percent last week. U.S. crude CLc1 eased 1 cent to $49.88 a barrel.

Asian stocks start new month on firm footing, bonds under pressure

Asian stocks held two-years highs on Monday, starting the new month on a solid footing after two quarters of gains while expectations of credit tightening by the world's major central banks kept global bond markets under pressure.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was flat, staying within a stone's throw of its two-year peak hit last week.

Signs of stabilising in China's economy and a recovery in the European economy helped to boost global share prices in the first half of this year.

A private sector survey on China's manufacturing CNPMIC=ECI showed a surprise recovery in activity, adding to the evidence of steadying growth in the world's second largest economy.

The Bank of Japan's tankan corporate survey showed Japanese business sentiment improved slightly more than expected.

On Wall Street, the S&P 500 .SPX scored its biggest gain for the first half of the year since 2013 while the Nasdaq Composite's .IXIC first-half gain was its best in eight years.

European shares had less luck after the European Central Bank and the Bank of England last week signalled their readiness to tighten their monetary policies, with pan-European Euro first 300 stock index .FTEU3 hitting 10-week lows on Friday.

Global bond yields have risen sharply following hawkish comments from European Central Bank President Mario Draghi last Tuesday, with German bond yields posting their biggest weekly jump since December 2015 last week.

That helped to lift U.S. bond yields from lows, with the 10-year U.S. Treasuries yield hitting a 1-1/2-month high of 2.320 percent on Monday.

The rise came even as data showed U.S. inflation cooled in May. The annual rise in core consumer prices excluding food and energy slowed to 1.4 percent, its lowest since December 2015.

Dollar gains as Fed sticks to guns on policy tightening

The dollar inched higher on Thursday, with expectations of another Federal Reserve rate hike this year kept alive by a policy meeting that also pointed the way to a trimming of the huge emergency funds pumped into the economy since 2009. 

As widely expected, the Fed raised interest rates a quarter percentage point to a target range of 1.0-1.25 percent on Wednesday but it also gave its first clear outline on its plan to reduce its $4.2-trillion bond portfolio.

That undid all of the damage done to the greenback earlier in the day and pushed it higher as European traders got down to business on Thursday.

By 0806 GMT, the index which measures the dollar's broader strength was up 0.2 percent at 97.145 .DXY.

A Reuters poll of 21 of the 23 primary dealers that do business directly with the Fed showed 14 of them now believed it would announce the start of its balance sheet normalization at its Sept. 19-20 policy meeting. The rest of them said it would make such a move at its Dec. 12-13 meeting.

Deepening political turmoil in Washington did not seem to weigh on the greenback after the Washington Post reported that U.S. President Donald Trump is being investigated by special counsel Robert Mueller for possible obstruction of justice.

Against its Japanese counterpart, the dollar rose 0.1 percent to 109.57 yen JPY=EBS, above Wednesday's eight-week low of 108.81 yen.

On Friday, the Bank of Japan is widely expected to keep its monetary policy unchanged, and reassure markets it will lag the Fed in tapering its massive stimulus program, as Japan's inflation remains low despite a strengthening economy.

The euro EUR= was 0.3 percent lower at $1.1191, down a full cent from a seven-month peak of $1.1296 scaled overnight.

The Australian dollar AUD=D4 rose 0.2 percent to $0.7599, moving back toward its 2-1/2-month high of $0.7636 hit on Wednesday, after a better-than-forecast employment report.

But the New Zealand dollar skidded 0.7 percent to $0.7222 NZD=D4, moving away from the previous session's four-month high of $0.7319.

BOJ's Kuroda says won't raise bond yield targets now

Bank of Japan Governor Haruhiko Kuroda said on Friday he does not expect the central bank to raise its bond yield targets now, and will look at underlying trend inflation in guiding monetary policy.

"If inflation in Japan accelerates sharply, at some point the BOJ may debate adjusting its interest-rate targets," Kuroda said at a Reuters Newsmaker event.

"When deciding on monetary policy, we must look at the underlying trend of inflation ... We won't change monetary policy just because oil price rises push up inflation," he said.