March 9, 2018 / 8:33 AM / 5 months ago

FOREX- Yen dives as risk appetite roars; euro subdued

* Bank of Japan reaffirms dovish policy stance

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, March 9 (Reuters) - The dollar jumped half a percent against the yen on Friday as hopes of a breakthrough in the North Korean nuclear standoff rose and after the Japanese central bank reaffirmed its decision to stick to its ultra easy policy stance in the coming months.

At the outcome of a two-day monetary policy meeting on Friday, the Bank of Japan stuck to its dovish stance. While sounding optimistic on growth, Governor Haruhiko Kuroda reiterated there would be no plan to change monetary policy before the 2 percent inflation target is met.

Also fanning broad-based risk appetite was news that U.S. President Donald Trump was prepared to meet North Korea’s Kim Jong Un in what would be the first face-to-face encounter between the two countries’ leaders. That could potentially mark a major breakthrough in nuclear tensions with Pyongyang.

The news helped dollar/yen, which has fallen 7 percent since the start of the year on concerns that the outbreak of a trade war would derail a global growth recovery, to bounce sharply on Friday. The yen also fell 0.5 percent and 0.7 percent against the euro and sterling respectively.

“We are trying to find a bottom on dollar/yen and the other thing to watch for is when the typical year-end repatriation flows that are made by Japanese institutions for the fiscal year end abates, and that might push dollar/yen even higher,” said Kenneth Broux, a currency strategist at Societe Generale.

The greenback had gained ground earlier against the yen as some fears of a global trade war receded. Trump imposed import tariffs on steel and aluminium, while softening his stance by announcing exemptions for Canada and Mexico, and leaving open the chance for other countries to obtain their own.

“There are a lot of potential exemptions, so I think safe haven flows into the yen have abated,” said Roy Teo, investment strategist for LGT Bank in Singapore.

The U.S. dollar had tumbled to 16-month lows against the safe-haven yen late last week as concerns about a trade war gripped markets after Trump initially announced his plan for tariffs on all imports of steel and aluminium.

Against a broad basket of currencies, the dollar was broadly flat on the day at 90.158.

The euro nursed its losses after falling on Thursday as European Central Bank President Mario Draghi, while acknowledging faster growth in Europe, said regional inflation remained subdued and rising protectionism is a risk.

Draghi expressed his view on these issues at his news conference after a central bank policy meeting. It overshadowed the ECB’s dropping of a long-standing pledge to increase its bond purchases if needed, a move that briefly spurred buying of the single currency.

The euro held steady at $1.2310, after falling 0.8 percent on Thursday. (Reporting by Saikat Chatterjee Editing by Catherine Evans)

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