Dollar/Yen Underpinned After BOJ Keeps Ultra-easy Monetary Policy in Place

The major currencies traded mixed at some times last week, but overall they were on the weak side of the soaring U.S. Dollar.

Japanese Yen

The Dollar/Yen posted a modest gain last week with most of the buying taking place on Tuesday, following the Bank of Japan’s interest rate decision and monetary policy statement.

The USD/JPY settled at 111.273, up 0.257 or +0.23%.

The BOJ surprised a few traders on Tuesday when it voted to keep its ultra-easy monetary policy in place in a bid to stimulate inflation, which the central bank acknowledged will likely fall short of its 2% goal until at least 2021.

The central bank stayed with its overall policy framework despite a global wave of monetary tightening led by the Federal Reserve and despite speculation that it might tweak one of its rate targets to ease the side effects of prolonged easing. This was in response to bankers who said that low rates across the board have squeezed their profits.

The Bank of Japan’s nine-member policy board voted 7-2 to keep a key short-term interest rate at minus 0.1% and maintain its zero target for the yield on 10-year Japanese government bonds.

Most of the economic data from Japan was on the weak side. The Unemployment Rate rose to 2.4%, up from 2.2%. Preliminary Industrial Production was down 2.1%, versus an estimate of -0.3%.

Housing Starts fell 7.1%, well below the -2.5% forecast. Consumer Credit also fell to 43.5, below the 43.9 estimate.

The Bank of Japan also issued its monetary policy meeting minutes from June. BOJ policymakers said it was necessary to monitor the negative economic impact of continuing monetary stimulus amid stubbornly weak inflation, minutes of their June meeting showed on Friday.

The minutes suggest members of the central bank’s Policy Board recognized a need to make policy more flexible, setting the stage for their decision earlier this week to allow long-term yields to rise higher and tweak the bank’s asset purchases.

Australian Dollars

The Australian Dollar was under pressure most of the week until Friday when it gained back most of its loss on short-covering in response to a mixed U.S. jobs report.

For the week, the AUD/USD settled at .7398, down 0.0004 or -0.06%.

Early in the week, the Aussie lost ground in response to solid U.S. economic data and the hawkish Federal Reserve’s assessment of the economy. The shedding of risky assets also lead to a wave of selling pressure as well as President Trump’s request for stiffer tariffs on China.

The Australian Trade Balance rose to 1.87 billion, better than the estimate of 0.91 billion. The previous month was revised lower to 0.73 billion.

Australian Retail Sales rose 0.4%, matching the previous month. However, it was slightly better than the 0.3% forecast.

New Zealand Dollar

The New Zealand Dollar finished the week lower with investors reacting to the escalation of the trade dispute between the United States and China, the divergence between the hawkish U.S. Federal Reserve and the dovish Reserve Bank of New Zealand and mixed domestic employment data.

The NZD/USD settled at .6748, down 0.0048 or -0.71%.

Early in the week, ANZ Business Confidence came in at -44.9, worse than the previous reading of -39.0. The quarterly Employment Change rose 0.5%, lower than last month’s 0.6% gain, but slightly better than the 0.4% forecast. The Unemployment Rate was 4.5%, higher than the estimate and previous read.