Published: Thu, August 02, 2018
Markets | By Noel Gibbs

Dollar seesaws vs yen after BOJ tweaks policy

Dollar seesaws vs yen after BOJ tweaks policy

But it added that the yield "may move upward and downward to some extent", suggesting it will allow it to rise higher than its previous de facto ceiling of 0.1 percent.

At the same time, the central bank delivered a range of adjustments created to alleviate strains from negative rates and asset-buying on commercial banks and reduce market distortions.

Anglo American, Antofagasta and Glencore fell between 0.8 percent and 1.4 percent.

While keeping unchanged its two major benchmarks - the negative interest rate and 10-year yield target - the BoJ took a number of steps to alleviate the strain on banks and the market distortions stemming from its policy.

"The BOJ is now more engaged and prepared to fight a long-run battle against deflation or disinflation", said Shigeto Nagai, Head of Japan Economics at Oxford Economics.

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The yield on 10-year Treasuries declined two basis points to 2.95 per cent, the lowest in a week on the biggest fall in more than a week.

The greenback had pared some of its gains about two hours after the decision, trading 0.2 percent higher at 111.30 yen.

It meanwhile introduced forward guidance, promising to keep extremely low levels of interest rates "for an extended period of time". And it will continue to buy government bonds so that the outstanding balance will increase at an annual pace of about 80 trillion yen, or 700 billion dollars.

The changes, although small, would be the first since 2016 and the latest sign Governor Haruhiko Kuroda is gradually walking away from his radical stimulus program deployed five years ago to shock the public out of a persisting deflationary mindset.

In a quarterly review of its projections also released on Tuesday, the BOJ trimmed its price forecasts and conceded inflation could fall short of its target for three more years.

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Expectations for the upcoming Bank of Japan meeting also pressured yields, analysts said, along with German and Spanish inflation data that remained slightly above the ECB's price stability target in July. The estimate for fiscal 2019 was cut to 1.5 percent, from 1.8 percent, while fiscal 2020 was trimmed to 1.6 percent, from 1.8 percent.

Aside from its yield targets, the BOJ floods markets with cash by buying risky assets such as ETFs and corporate bonds. "Upcoming direction depends on how the market reacts to BOJ's decision and Japanese data, with a break below 110.58, the low set last week, opening doors for a steeper decline below the 110.00 figure".

United Kingdom stocks opened lower on Monday as weak metal prices on concerns over slowing growth in China pulled down miners and investors adopted a cautious stance ahead of key central bank meetings in the U.S., Japan and the United Kingdom this week.

The euro has had problems of its own as the European Central Bank emphasized that rates would not be rising until the second half of next year.

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