US Dollar Gains Against Yen as BOJ Maintains Loose Policy

US Dollar Strengthens Against Yen

The US dollar saw a significant increase against the yen on Tuesday following the Bank of Japan’s decision to maintain its ultra-loose monetary policy. This move comes amidst broader expectations for interest rate cuts next year, which have weighed down the dollar against other major currencies.

Bank of Japan’s Policy Decision

The Bank of Japan’s decision to maintain its ultra-loose policy settings was in line with expectations. The central bank chose to wait for further evidence on the potential rise in wages and prices, which would justify a shift away from massive monetary stimulus. Additionally, there were no changes to the bank’s dovish policy guidance, dashing hopes for an imminent end to negative interest rates.

Market Reaction

Traders reacted to the news by pulling back on expectations for a move into positive rate territory from the Bank of Japan in the early new year. This lack of indication from policymakers regarding a dramatic increase in rates led to a 0.76% increase in the dollar against the yen, which had previously experienced a 3.7% retreat this month due to broader dollar weakness and speculation of a BOJ policy shift.

Expectations for Federal Reserve Rate Cuts

Meanwhile, the dollar struggled against most majors as traders sold the US currency amid expectations that the Federal Reserve would begin cutting rates as early as March. Despite pushback from Fed officials, market expectations continued to point towards a decline in the greenback.

Impact on Currency Strength

The US Dollar Index, which measures the currency’s strength against a basket of six rivals, experienced a 0.35% decrease, dipping 1.5% over the last week. Market participants are closely watching for signals from FOMC Chair Jerome Powell or updates on the core Personal Consumption Expenditures (PCE) price index to gauge the timing of potential rate cuts.

Strength of Other Currencies

Amidst the dollar’s weakness, the Australian and New Zealand dollars gained ground, with the Australian dollar reaching its highest level since late July. Additionally, the Canadian dollar strengthened to a four-and-a-half-month high against the US dollar.

Pound’s Rise and Cryptocurrency Stability

The pound also saw an increase, benefiting from the dollar’s weakness, while the cryptocurrency market remained relatively stable.