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Yen drops as BOJ maintains its monetary policy

Yen bounces

The Japanese currency was last more than 0.2% lower at 148.39 per dollar, in the wake of the decision which saw the BoJ hold its short-term interest rate target steady at -0.1% and 10-year JGB yield target around 0%

The yen dropped broadly on Tuesday after the Bank of Japan maintained its ultra-loose monetary policy in a closely watched policy decision, matching market expectations.

The Japanese currency was last more than 0.2% lower at 148.39 per dollar, in the wake of the decision which saw the Bank of Japan hold its short-term interest rate target steady at -0.1% and 10-year Japanese government bond (JGB) yield target around 0%.

At the conclusion of its two-day policy meeting on Tuesday, the BoJ also made no changes to its forward guidance on monetary policy and lowered its forecast for growth in core consumer prices for the coming fiscal year starting in April.

Against the euro, the yen slipped 0.2% to 161.49. Sterling added 0.43% to 188.56 yen.

With the confirmation of the continuation of monetary easing, (dollar/yen) may test 150, said Hirofumi Suzuki, chief FX strategist at SMBC, citing the sharp interest rate differentials between Japan and the US.

Expectations that the Bank of Japan could phase out its negative interest rate policy this month had been quashed in the wake of the country’s devastating New Year’s Day earthquake and dovish comments by BOJ Governor Kazuo Ueda.

Most analysts now predict the Bank of Japan will exit its negative interest rate policy at the April meeting after the Shunto wage negotiation result becomes available, said Joy Yang, head of Asian economic research at Point72.

While we still see April as the most likely window, the risk that the BOJ will do the first hike later than April has been growing, Yang added.

The ECB also meets this week, where expectations are similarly for its deposit rate to be held steady at the current 4.00%.

ECB policymakers, including President Christine Lagarde, have pushed back against market expectations for early rate cuts.

That’s helped the euro a little, with the currency having traded largely sideways over the past few sessions. It was up 0.05% at $1.0889.

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