Yen Falls as FX Market adjusts to Central Bank’s Decision

On Friday, the Japanese yen slid against the US dollar, after the Bank of Japan chose to stay dovish and not follow the stance of other global central banks in tightening its monetary policy. Instead, they have chosen to continue with their ultra-accommodative approach, which has pushed up the volatility in currency markets as they had to deal with a number of interest rate hikes in the week.

Monetary Policies Tightened

There has been a great deal of turmoil in the currency markets this week, which saw the biggest run of tightening monetary policies by central banks in decades. This includes the 75 basis points increase in the interest rate by the US Federal Reserve in the middle of the week. This is the biggest increase by the US central bank since 1994.

Likewise, the Swiss National Bank (SNB) also delivered a surprise when, contrary to expectations, it also hiked up the interest rate by 50 basis points. Experts had not expected it to hike the interest rate in this meeting. The Bank of England (BoE) also joined the ranks with a hike of 25 basis points and the European Central Bank (ECB) said that it would also start hiking rates from the next month.

BOJ Continues To Be Dovish

However, with Friday’s decision, the Bank of Japan, chose to stay dovish, as they announced that they would not make any changes to their policy. Plus, the Japanese central bank also said that it would defend the 0.25% bond yield cap by continuing its bond-buying. Market analysts said that everyone had expected the BOJ to tweak its policy, but they decided against it.

On Wednesday, the yen had hit a 24-year low against the US dollar at 135.6 and it plunged further after the announcement of the BOJ’s decision. There was a 2.09% decline in the Japanese currency against the greenback and it was trading at 134.885. As opposed to the euro, the currency had declined by 1.62%.

FX experts said that the level of 135 had proven to be a technical resistance point for the Japanese yen and there could be a number of shorts against the USD/JPY currency pair to be able to cover the best if the currency manages to break through. The currency pair could go as high as 137 to 140.

Dollar Rises

The dollar had come down to a low of one week against a basket of major currencies. It had been sliding for two days after the US Federal Reserve had announced its decision of the interest rate hike. However, the currency rose on Friday, as the dollar index increased by 0.732%. It measures the greenback against six other currencies and had reached 104.64.

This meant that the currency was on its way to rising by 0.4% in the week, just before a long week in the US. As far as the euro is concerned, it fell against the US dollar by 0.53% to reach $1.0496.