Yen falls on reports of further Bank of Japan easing

The yen slipped on Wednesday to a one-week low against the dollar, after a report said the Bank of Japan is considering further monetary easing steps, including taking interest rates deeper into negative territory.

While sources have told Reuters the BOJ may make its massive government bond purchasing program more flexible, the Nikkei business daily said that in doing so the central bank will likely maintain its pledge to increase its holdings, to be announced at next week’s policy meeting.

The yen climbed 25 percent against the dollar in the year up to June, when the safe-haven currency hit a 2-1/2-year high of 99 yen per dollar in the aftermath of Britain’s shock vote to leave the European Union.

That was despite the BOJ’s move in January to cut interest rates into negative territory for the first time – a step aimed at weakening the yen.

“The Bank of Japan spent a long time being a bit introverted and unsure of itself after January’s policy move failed,” said Kit Juckes, macro strategist at Societe Generale in London.

“If they come out more committed now, particularly into a rising U.S. yield environment, I think they can make a weaker yen stick,” he added. U.S. long-term yields have risen in the past month, hitting a three-month high on Tuesday.

The dollar gained 0.7 percent on Wednesday to hit 103.35 yen, its strongest against the Japanese currency since September 6. The euro gained 0.9 percent to hit a nine-day high of 116.085 yen.

“The view was already there that the BOJ could steepen Japan’s excessively flat yield curve and deepen minus rates to lessen the negative impact on financial institutions,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

“But it appears that such a view had not been fully priced in by the market.”

The greenback was flat against a basket of currencies, having hit a one-week high the previous day, just a week before the U.S. Federal Reserve’s next policy meeting begins. Markets are pricing in just a 15 percent chance that interest rates will be hiked this month, according to CME FedWatch.

Commodity-linked currencies such as the Australian and Canadian dollars posted a modest rebound after sliding overnight on the back of a tumble in oil prices.

Source: Reuters