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FOREX-Yen weakens as risk sentiment improves, BoJ maintains status quo
December 19, 2014 / 9:06 AM / 3 years ago

FOREX-Yen weakens as risk sentiment improves, BoJ maintains status quo

* Russian rouble, oil stabilise, boosting risk appetite

* Expectations of more Japan stimulus weighs on yen

* Euro heads towards recent lows vs dollar

By Anirban Nag

LONDON, Dec 19 (Reuters) - The yen fell on Friday amid expectations of further stimulus next year to bolster Japanese inflation and also on a revival of global risk sentiment after battered oil prices and Russia’s rouble stabilised.

The dollar gained 0.5 percent against Japan’s currency to buy 119.40 yen, while the euro rose about 0.4 percent to 146.58 yen.

The Bank of Japan kept monetary policy unchanged at the end of its two-day meeting on Friday, as expected, and offered a more upbeat view on the economy, signalling that no immediate expansion of stimulus was on the horizon.

BoJ chief Haruhiko Kuroda said Japan was still halfway towards meeting an inflation goal of 2 percent and policymakers would do anything necessary to achieve it. In October, the BoJ surprised markets by expanding its quantitative easing (QE) programme, sending the yen to multi-year lows.

“Contrary to the situation in the U.S. there is a risk that inflation expectations might get mired down in the area around zero again,” said Ulrich Leuchtmann, currency strategist at Commerzbank, citing the impact of lower oil prices.

“If that were to be the case, and the trend is pointing in this direction, the BoJ would be forced to open the QE tap even further. However, that is more likely to become an issue in the second half of 2015.”

Diverging monetary policy between the United States and Japan is expected to support the dollar versus the yen into 2015, as Tokyo keeps its stimulus in place and the U.S. Federal Reserve gears up for an eventual tightening.

On Wednesday, the Fed removed its pledge to keep rates near zero for a “considerable time”, signalling its confidence in the U.S. recovery and keeping it on track for a rate hike in 2015.

The euro edged lower against the greenback to $1.2275 on expectations the European Central Bank will resort to buying government bonds in early 2015, with inflationary expectations stuck near lows..

The gap between U.S. two-year bonds and their German counterparts hit its highest in almost eight years.

The Swiss National Bank’s decision to implement negative deposit rates on the day the ECB next meets on Jan. 22 has triggered talk that the latter could take action early in 2015.

“While our longer-term euro/dollar target of $1.12 for end- 2015 is based on existing policy, QE by the ECB is likely to see this target achieved more rapidly,” Morgan Stanley said in a note. (Editing by Gareth Jones)

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