November 20, 2012 12:17 pm

Yen climbs after BoJ rejects call to ease

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The yen plumbed a fresh seven-month low against the US dollar on Tuesday despite Japan’s central bank keeping its monetary policy on hold in the face of political pressure to take measures to weaken the currency.

The yen advanced against the dollar in early trading before giving up its gains to trade down 0.4 per cent against the US dollar to Y81.75 in a mildly risk-off environment. The dollar index ticked up slightly to 80.9 points.

The fact that analysts had largely expected the Bank of Japan’s decision halted the currency’s advance. Analysts at Nomura said: “The meeting followed recent moves by the BoJ to expand the asset purchase programme by a total of Y21tn in September and October, so few in the market expected additional monetary easing measures to come out of this meeting.”

The yen has fallen significantly over the past week against its main trading partners, down 2.9 per cent against the dollar and 3.6 per cent against the euro since November 9, following the announcement of early elections in December.

Shinzo Abe, head of the opposition Liberal Democratic party and likely next prime minister, has been a vocal proponent of powerful new easing measures being taken by the BoJ.

Société Générale’s Kiyoko Katahira believes the central bank will be more dovish in 2013 particularly as the governor and two deputy governors of the BoJ complete their terms in the spring – between March and May – when the more dovish government is likely to have come to power.

The euro gained 0.4 per cent against the yen to Y104.69, fell 0.1 per cent versus sterling to £0.8046, and traded flat against the dollar at $1.2814 as it mostly shrugged off the Moody’s downgrade of France on Monday night.

The US rating agency followed Standard & Poor’s to become the second big rating agency to downgrade the country’s sovereign debt rating from triple A this year. Market watchers have suggested the single currency remains supported by a sense of optimism about the outcome of Tuesday’s eurogroup meeting.

The Canadian and Australian dollars both lost some ground against their US equivalent but the announcement by the International Monetary Fund that both currencies were to be considered for inclusion separately in the IMF’s “Currency Composition of Official FX Reserves” data, although backward looking, recognised a more permanent change in reserve management and investor behaviour.

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