A Friday rise helped push the dollar to its strongest weekly gain against the yen since November 2014, a time when expectations that the Federal Reserve would soon raise interest rates were driving a massive run-up in the greenback.
Reports that the Bank of Japan was weighing whether to extend negative interest-rate loans to banks—a move analysts said would be tantamount to paying banks to borrow money—helped drive a massive rally in the dollar, helping the U.S. currency log its largest daily gain against the yen since January.
The reports raised expectations that the BOJ might move to aggressively ease monetary policy when it meets next week, said Jane Foley, senior currency strategist at Rabobank.
One dollar USDJPY bought ¥111.55 late Friday in New York after rising as high as ¥111.80—its strongest level in nearly three weeks—earlier in the session. By comparison, the buck bought ¥109.44 late Thursday
Despite the sharp decline, the Japanese currency remains 7.5% higher against the greenback year-to-date.
The yen’s strength has become a headache for Prime Minister Shinzo Abe because a weaker currency was seen as one of his administration’s biggest accomplishments.
But whether or not the BOJ acts might not matter, Foley said.
“Irrespective of the policy decision taken by the BoJ next week, a stronger [dollar] would be very useful in supporting growth and inflation in Japan,” she added.
Investors are turning their attention to the BOJ and a meeting of the Federal Reserve next week in the wake of an uneventful European Central Bank meeting on Thursday. Speculation of more BOJ easing has increased since the Japanese southern island of Kyushu was hit by a powerful earthquake earlier this month.
The Fed and the BOJ will each wrap up their two-day meetings on Wednesday and Thursday, respectively.
In other currency trading, the euro EURUSD logged a slight weekly decline of 0.5%. It traded at $1.1233 late Friday in New York, compared with $1.1287 late Thursday.
On Thursday, the ECB left its policy unchanged, but ECB President Mario Draghi reopened the door to fresh interest-rate cuts. Draghi said the ECB was ready to take fresh action if needed, and that all policy tools were on the table — including deeper interest-rate cuts, which he had all but ruled out last month.
The British pound extended its gains after showing resilience to a spate of weak economic data earlier this week on the belief that the risk of a U.K. exit from the European Union has faded, according to a team of currency strategists at Scotiabank.
Meanwhile, the British pound logged a weekly gain of 1.6%, its best since early March. The British currency traded at $1.4413 late Friday in New York, compared with $1.4323 late Thursday.
The ICE U.S. Dollar index a measure of the dollar’s strength against a basket of six currencies, rose 0.5% on the day to 95.0640 for a weekly gain of 0.4%.