FOREX-Yen firms as Bank of Japan leaves policy stance unchanged

Tue Mar 11, 2014 5:03am EDT

Related Topics

* BOJ holds policy steady, downgrades view of exports

* Euro shows resilience, bids at $1.3850 support for now

* BOE's Carney to face grilling over FX rigging allegations

By Anirban Nag

LONDON, March 11 (Reuters) - The yen edged up on Tuesday after the Bank of Japan stood pat on monetary policy and its chief, Haruhiko Kuroda, said there was no need to adjust monetary policy for now.

The BoJ maintained its massive monetary stimulus, as widely expected, and stuck to its view that economic growth and consumer price increases remain on track. It downgraded its view of exports but upgraded its view of capital expenditure and industrial production.

The dollar was slightly lower at 103.20 yen, trading at the bottom of the 103.19-103.43 yen range. The euro was down 0.2 percent at 142.95 yen, off a recent two-month high of 143.79 yen.

The yen is also a safe-haven currency, so it's been supported by worries over Chinese growth and conflict between Russia and Ukraine.

"Dollar/yen has been in a range between 101-104 yen for much of this year, and the yen needs a fresh trigger for the next leg of weakness," said Peter Kinsella, currency strategist at Commerzbank. "That could come from a steady deterioration in Japan's trade and current account deficits."

Analysts also said further yen weakness could come if the BoJ indicated it was ready to ease policy further to cushion the economy from the adverse impact of a sales tax hike.

The BoJ's next meeting on April 30 comes after a sales tax increase scheduled to take effect on April 1. The central bank will also release its semi-annual economic outlook then, which investors say could give it an opportunity to alter its outlook and justify a policy move.

"In order to ease, they have to change their way of looking at the economy, and currently they think the economy looks okay, so they don't feel they need to do anything at all," said Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments.

Data on Monday underscored the recovery remains fragile. Japan posted a record current account deficit in January, and its fourth-quarter gross domestic product growth was revised down, suggesting the effects of BoJ easing might have begun to wane.

EURO'S RESILIENCE

The euro edged down about 0.1 percent against the dollar to $1.3865 but remained not far from a 2 1/2-year peak of $1.3915 hit on Friday. Traders cited bids at $1.3850 which would check losses in the near term.

The euro held most of its ground as the European Central Bank signalled it was unlikely to ease policy, despite slowing inflation, and said the currency's strength was having only a marginal impact on imported inflation.

The European session will see Bank of England chief Mark Carney testify to UK lawmakers concerning allegations of the FX market has been manipulated. The central bank suspended an employee last week in connection with an investigation into the alleged manipulation.

Meanwhile, the New Zealand dollar hit a post-float high against a currency basket before a widely expected rise in New Zealand interest rates on Thursday. On a trade-weighted basis, the kiwi rose as high as 79.51, according to Reuters data, its highest level since the currency was floated in 1985.

The Reserve Bank of New Zealand is set to raise rates and lay out a path for a series of increases over the next two years, according to a Reuters poll.

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