Mark DeCambre, Hiroyuki KachiThe dollar on Wednesday weakened against the yen in gyrating swings following the Bank of Japan’s decision to focus on maintaining yields for 10-year Japanese government bonds at zero in its latest attempt to combat stubbornly low inflation.
The BOJ kept its interest rates unchanged as it adopted a long-term target for the its 10-year note, which many market participants viewed as radical step ahead of the Federal Reserve’s policy decision slated for Wednesday at 2 p.m. Eastern Time.
The greenback USDJPY, -1.08% was changing hands at ¥100.85 after moving as high as ¥102.79 earlier in the session in a up-and-down action. That compares at ¥101.72 late Tuesday in New York.
Traders said recent moves strengthening of yen signals that the market isn’t entirely convinced that the BOJ’s actions will achieve its desired effect of boosting the Japanese economy.
“The market is reading this has having no meaningful impact in the currency,” said Boris Schlossberg, head of G-10 currencies at BK Asset Management.
Looking ahead of the Fed’s policy decision, Schlossberg said the yen could stay at parity with the greenback, which is equal to 100 yen for every U.S. dollar. “And that’s a bad sign, meaning that the [BOJ]’s effort to re-liquify the exchange rate has been completely disabled,” he said.
As the BOJ left its deposit rate unchanged at minus 0.1%, the dollar initially was pulled to a low of ¥101.00, its lowest level since Aug. 26. Investors then turned to buy the yen, before selling yen as details from the Bank of Japan’s latest statement emerged, and as Bank of Japan Gov. Haruhiko Kuroda held a news conference to discuss monetary policy.
Kuroda said the bank would continue quantitative easing until inflation “exceeds” 2%, effectively strengthening its commitment to continue its aggressive easing. Speaking at a news conference he said the new rate target would help the inflation target, which it views as a healthy level for its economy.
Meanwhile, the euro EURJPY, -1.10% rose to ¥112.50, after tapping as high as ¥114.40. Late Tuesday in New York, the shared currency bought from ¥113.43. Meanwhile, the Australian dollar AUDJPY, -0.82% was little-changed at ¥76.70 from ¥76.85.
The new steps, considered friendly to the nation’s banking sector, pushed up Tokyo stocks and brightened market sentiment, providing traders another reason to sell the safe-haven yen. Japanese stocks turned higher, leaving the benchmark Nikkei Stock Average NIK, +1.91% up 1.9% to 16,807.
Some investors have raised questions about how well the Bank of Japan’s new policy will work. “If you take the time to read through these measures, then the impression is of a central bank that has largely lost the monetary plot and is undertaking an ever more complicated and convoluted approach to monetary policy,” Simon Smith, chief economist at FXPro, wrote in a note to clients Wednesday.
For example, Japanese 10-year government bonds TMBMKJP-10Y, +62.02% were at negative 0.03% Wednesday in New York.
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“The problem is that the market is pre-programed to dismiss what the BOJ has done as not being sufficient,” said Steve Barrow, currency and fixed-income analyst at Standard Bank.
Investors are now closely watching if the Fed will hint at future tightening when it wraps the policy meeting later, especially after recent soft U.S. economic indicators dialed back expectations for higher short-term rates in the near future. Many expect the Fed will likely wait until December before increasing rates.
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Despite the BOJ’s monetary easing under Kuroda since April 2013, domestic demand isn’t growing, said IG Securities market analyst Junichi Ishikawa.
“That’s is the political issue the government needs to tackle through structural reform and goes outside the reach of Gov. Kuroda,” said Ishikawa, who added that Prime Minister Shinzo Abe needs to push pro-growth policies to revive such sectors as the medical and agricultural fields.
In other currency trade, the euro EURUSD, -0.0179% was at $1.1146 from $1.1150.
The ICE U.S. Dollar Index DXY, -0.15% a gauge of the buck’s strength against a half a dozen rivals, was down 0.2% at 95.8550. The WSJ Dollar Index BUXX, -0.28% a measure of the dollar against a basket of major currencies, was down 0.3% at 86.6.
— Barbara Kollmeyer contributed to this article