Yen falls after dovish BOJ; euro limps towards weekly loss By Reuters

By Rae Wee

SINGAPORE (Reuters) -The yen fell broadly on Friday after the Bank of Japan (BOJ) stood pat on rates and said it would trim bond buying in the future, while elsewhere the euro, mired in political turmoil, was headed for a weekly loss.

Defying market expectations, the BOJ said at the conclusion of its two-day policy meeting it would continue to buy government bonds at the current pace and would come up with a plan to trim purchases for the next one to two years at its next policy meeting in July.

Markets had expected the central bank to announce a reduction of its massive bond purchases this month, following various media reports in the lead up to Friday’s decision.

The yen slumped more than 0.5% to a more than one-month low of 157.895 per dollar in a knee-jerk reaction to the outcome.

“It is a surprise that no decision was made on the reduction of bond purchases this time,” said Hirofumi Suzuki, chief FX strategist at SMBC.

“At the next meeting, the BOJ said it would decide on a specific plan for the next one to two years. Therefore, it is considered that the result was somewhat dovish.”

Similarly, the euro extended early gains to rise 0.56% against the yen, while sterling was last 0.45% higher at 201.30 yen.

In the broader market, the dollar was on the front foot, helped by gains against the euro and safe-haven bids as France’s snap vote call stoked fears of political uncertainty in the country and the wider euro zone bloc.

Sterling edged 0.07% lower to $1.2753 and was set for a weekly gain of 0.3%.

The eased 0.14% to $0.6628, while the New Zealand dollar slipped 0.28% to $0.61505.

However, the two Antipodean currencies were on track to rise 0.8% and 1% for the week, respectively, owing to expectations that rates there could remain higher for longer and also as a run of U.S. economic data this week revived the chance of earlier rate cuts from the Federal Reserve.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits increased to a 10-month high last week while separate data pointed to producer prices unexpectedly falling in May, adding to bets the Fed could kick off its easing cycle in September.

The figures followed Wednesday’s U.S. inflation reading which showed consumer prices were unexpectedly unchanged in May.

While the Fed, at the conclusion of its monetary policy meeting this week, struck a more hawkish tone than expected and projected only one rate cut for 2024, investors chose to focus on the softer-than-expected data instead, which has in turn sent Wall Street charging to record highs and Treasury yields falling.

“The Fed has changed its mind multiple times on its expected policy path, so we don’t put much weight on its new set of projections – and Powell himself said he didn’t ‘hold it with high confidence’, emphasizing the Fed’s data-dependent approach,” said Jean Boivin, head of the BlackRock (NYSE:) Investment Institute.

“No matter the forward-looking statement from the Fed, incoming inflation surprises – in either direction – will likely continue to lead to large revisions to the policy outlook.”

The was little changed at 105.31.

POLITICAL JITTERS

The euro meanwhile rose marginally to $1.0738, nursing some of its losses from the previous session. Still, it remained poised for a weekly loss of nearly 0.6%.

The single currency has had a turbulent week in the wake of French President Emmanuel Macron’s decision on Sunday to call a snap vote in his country, which spooked investors.

That came after France’s far right pummelled Macron’s own party in the EU parliament election.

Against the British pound, the euro languished near a 22-month low and was staring at a weekly decline of 0.9%.

Similarly, the common currency held near its weakest level in over five months against the Aussie and in six against the .

“Although Macron’s announcement came as a surprise, there is a possibility that new elections could work in his favour. However, the likelihood of this scenario is quite low. It is more probable that Macron’s political standing will diminish, albeit not to the extent of preventing him from establishing a new government,” said Erik-Jan van Harn, senior macro strategist at Rabobank.

“Macron’s party suffered a substantial setback in the European elections, and unfavourable results in the upcoming elections could exacerbate concerns regarding the sustainability of the country’s debt.”