Last updated: June 11, 2013 7:31 pm

Yen jumps after BoJ policy decision

Japan’s yen jumped sharply on Tuesday, soaring against higher-yielding emerging market and commodity currencies after the Bank of Japan held monetary policy and refrained from taking further steps to curb volatile bond markets.

The yen climbed against the US dollar to trade as high as Y95.68, a 3 per cent loss for the dollar and the biggest percentage loss for the US currency against the yen since mid-March 2011.

The Bank of Japan’s policy board left its current market operations on hold, resisting some market expectations that it would extend the duration of its fixed-rate funds supply to two years from the current one year.

“The financial markets were clearly braced for some form of action from the BoJ to limit volatility in Japanese government bonds,” said Derek Halpenny at Bank of Tokyo Mitsubishi UFJ.

“But to have taken some form of monetary policy measure may have sent a message that JGB volatility was already undermining the BoJ’s efforts to lift the economy and remove deflationary pressures.”

Meanwhile, the board raised its economic assessment, while a government survey into the business outlook showed rising confidence in Japan’s corporate sector.

The yen climbed 2.7 per cent to Won11.70 against the South Korean won, while the dollar gained 0.5 per cent to Won1,133 as foreign funds sold Korean assets for a third day.

Net outflows of South Korean stocks have reached about $1bn in the past month to June 10, exchange data showed.

“The next focus shifts to the Federal Reserve meeting on June 18/19, but the signals that the Fed is sending seems to be that they want to continue to prepare the markets for tapering QE,” said Divyang Shah at IFR Markets.

“This remains an environment to be trimming or cutting risk exposure whether it’s on emerging markets or peripheral debt.”

Countries with current account deficits, such as South Africa, and those where investors were previously extremely bullish and valuations had become stretched, such as Mexico, were also hit.

The South African rand was down 2 per cent against the dollar at its worst, before recovering on strong manufacturing data to stand 1 per cent higher at R10.03.

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