The yen softened on Monday, extending losses from a volatile session at the end of last week after the Bank of Japan (BOJ) loosened its grip on interest rates, but it remained on track for its first monthly gain against the dollar since March.
There is plenty on the agenda in the coming week, with euro zone inflation and GDP data due later on Monday, the Bank of England meeting on Thursday, and U.S. payrolls on Friday, the first of several data points that will shape the Federal Reserve’s September interest rate decision.
The dollar rose to 142.22 yen its highest in three weeks in early European trading on Monday, and was last up 0.7% at 142.1.
The Japanese currency went into a tailspin on Friday as traders tried to determine the implications of the BOJ’s move to maintain ultra-low rates while making its bond yield curve control (YCC) policy more flexible and loosening its defence of a long-term rate cap.
The dollar eventually ended the Friday session with a 1.2% gain against the yen, though that was after it had slid 1% to a session-low of 138.05 yen.
Japan’s benchmark 10-year government bond yield surged to a nine-year high on Monday, spurring the central bank to conduct additional purchase operations to slow its rise, weighing on the currency.
“The decision by the BoJ to step back in soon … has likely surprised some market participants and encouraged yen selling overnight,” said MUFG analysts in a Monday note.
“At the same time, the yen’s failure to sustain gains following the BoJ’s policy announcement last week could also reflect the message from the BoJ that it is not in a hurry to begin raising interest rates.”
