The yen held steady against the euro and the dollar on Thursday in spite of the Bank of Japan giving no indication when it will end its ultra-loose monetary policy at its regular monthly meeting.
Toshihiko Fukui, BOJ governor, said he could not say whether the central bank would decide to end its quantitative easing policy - the pumping of additional liquidity into the banking system - at its next policy meeting on March 8-9.
The yen surged earlier this week on hopes of a policy shift earlier than April, when the new fiscal year begins, and the bank had said prospects for a change would grow.
“The comments in the [BOJ] press conference suggest this [March move] is not on the agenda,” Derek Halpenny of Bank of Tokyo-Mitsubishi UFJ said.
The Bank of Japan kept monetary policy unchanged by a 7-2 vote at its monthly meeting. In its monthly report, the BOJ reiterated that the economy was recovering steadily and that it expected a positive trend in consumer prices to emerge marking an end to deflation.
Koichi Hosokawa, Japan’s vice finance minister, said the economy was still stuck in mild deflation despite a recent rise in the core consumer price index.
But further evidence of economic recovery came from consumer confidence data released by the Cabinet Office. Consumer confidence for all households rose to 49.5 in January from 46.7 in December, the best level since 1990.
Even if the BOJ scales back quantitative easing the country’s interest rates are expected to stick near zero until at least late this year.
“Only the most ill advised tightening in monetary policy would make inroads into the superior money market returns available outside of Japan,” said Simon Derrick of Bank of New York. “But as we have seen this week, the prospects of change to a drastic policy approaching its fifth birthday, certainly has the potential to act as a relay, or trigger, for more concerted moves elsewhere.”
In contrast, upbeat comments on the US economy from Alan Greenspan, the former chairman of the Federal Reserve, encouraged the view US interest rates had further to climb. Some currency strategists see rates reaching 5 per cent later this year from the current 4.5 per cent.
The yen was fractionally ahead of the greenback at Y118.55 and 0.1 per cent up on sterling at Y206.33 but 0.1 per cent off versus the euro at Y141.79. The dollar was 0.1 per cent weaker against the single currency at $1.1957.
While the Bank of England as expected held interest rates at 4.5 per cent for the sixth straight month, sterling dipped slightly on news the Halifax house price survey for January showed its first monthly decline since May 2005.
Weaker trade data than expected also weighed on the currency. The global goods trade gap widened to £6.06bn in December, a fall to £5.6bn had been expected after the £6.01bn gap in November.
“Some solace can be taken from the fact that exports bounced from November’s weakness, rising 3.5 per cent month-on-month which might ease concerns at the BoE about the ability of exports to take up the slack from consumption in driving GDP,” said Daragh Maher of Calyon.
The pound was 0.1 per cent lower against the euro at £0.6869 and 0.1 per cent down on the dollar at $1.7402.
The Romanian leu hit a fresh 4½ month high of 3.5370 per euro, up 0.6 per cent, after the central bank increased interest rates by 100 basis by 8.5 per cent on Wednesday. The move was seen improving the bank’s hawkish credentials and will increase carry cash - money borrowed in a low-rate country like the Czech Republic (where the 2-week repo rate is currently 2 per cent) and invested in a higher yield market.
The South Korean won eased 0.1 per cent after the Bank of Korea delivered its expected 25 basis point hike in its overnight call rate target to 4 per cent - the highest since May 2003 and the third increase in five months.
Russia will scrap its remaining currency controls ahead of the previously planned January 1 2007 date, according to Alexei Kudrin, finance minister. However, he did not specify when.
Mr Kudrin sought to quell speculation of a rouble revaluation by saying the government would stick to the exchange rate targets of its 2006-2008 fiscal strategy.
In response to a question on the record foreign exchange volumes on the Moscow market on Wednesday, he said the exchange rate was the responsibility of the central bank. He also said rouble appreciation was “too fast”. The central bank had to buy roughly $6bn on Wednesday to curb the rouble’s appreciation.
The rouble has fallen nearly 1.7 per cent since the turn of the year to trade at 28.2643 roubles to the dollar.
Get alerts on Currencies when a new story is published