The Japanese yen rose on Thursday in extremely thin trade because of the Christmas holiday, but the dollar remained not far from the week’s highs hit on diverging monetary policy outlooks.
Tokyo markets were open for business as usual, giving Japanese exporters a chance to sell dollars. But many foreign investors were taking time off, and markets were closed in other key countries around the region, including Australia, Singapore, Hong Kong and South Korea. They will also be closed in Europe and North America.
The greenback shed about 0.3 percent on the day to 120.15 yen JPY=, while the euro also slipped about 0.3 percent to 146.69 yen EURJPY=.
The euro was slightly up on the day at $1.2216 EUR=, but was not far from a 28-month low of $1.2165 hit after the U.S. GDP data.
The dollar index .DXY, which tracks the greenback against a basket of six major rivals, edged down about 0.2 percent to 89.811, after it rose as high as 90.159 in the wake of the U.S. GDP report, its highest level since March 2006.
Recently upbeat U.S. economic data has provided evidence that the economy is steadily recovering, and heightened expectations that the U.S. Federal Reserve is on track to eventually hike interest rates in 2015. That outlook is in sharp contrast to Japan and Europe, where monetary policy is expected to remain loose to stimulate growth.
“Other than positioning, there are not a lot of people sitting in the cheering section for the yen right now,” said Bart Wakabayashi, head of forex at State Street in Tokyo.
“There’s no denying that the Fed continues to talk about when they’re going to hike, as opposed to if they’re going to hike,” he said.
Revised gross domestic product figures out on Tuesday showed the U.S. economy grew at an annualised 5.0 percent in the third quarter, its fastest pace in 11 years.
U.S. data on Wednesday showed that the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.
Meanwhile, minutes of the Bank of Japan’s November meeting released on Thursday showed that policy board members made a rare call on the government to steadily promote measures to restore the country’s fiscal health, a month after they expanded monetary stimulus.
At the November meeting, the central bank kept monetary policy unchanged after it took further easing steps in October to blunt the impact of sliding oil prices on its plan to achieve its 2 percent price growth target. It held steady at a subsequent meeting in December.
BOJ Governor Haruhiko Kuroda said on Thursday that the recent declines in oil prices have great benefits for Japan’s economy and will help to accelerate inflation in the long run.
The BOJ’s massive easing program has pressured the yields on Japanese government bonds. The benchmark 10-year yield JP10YT=RR dropped 2 basis points to a record low 0.310 percent on Thursday, and shorter maturities have moved into negative territory, beginning at the front end of the curve. The two-year yield JP2YT=RR dropped to a record low of -0.040 percent last week, and on Thursday, the Ministry of Finance sold two-year JGBs at negative yields for the first time.
Japanese yields are expected to stick to low levels as the BOJ continues its easy policy, in contrast to the Fed’s expected hike in U.S. interest rates. These diverging expectations have helped the dollar gain around 14 percent against the yen so far this year, and to log a 7-1/2 year high of 121.86 yen earlier this month.
“There were some guys taking profits in the dollar-yen this week, but most people seem happy to be caught long,” said Kaneo Ogino, director at Global-info Co in Tokyo, a foreign exchange research firm. “The dollar is set to finish the year on a high note, after the GDP report.”