FOREX-Yen rises on speculation of BOJ policy adjustment; dollar outflow

Author: Rae Wee

SINGAPORE, Oct 31 (Reuters) – The yen hovered near a two-week high on Tuesday, boosted by news that the Bank of Japan (BOJ) could further improve a key policy tool for bond yields when it announces its monetary decision later. day.

The dollar looked set to end the month essentially unchanged against a basket of currencies, losing a bit after September’s roughly 2.5% gain. Analysts say the dollar is supported by risks of further rate hikes by the Federal Reserve, with the US economy still resilient.

The Japanese yen was last at 149.13 per dollar after jumping to a two-week high of 148.81 in the previous session following a Nikkei report that the BOJ could potentially allow 10-year Japanese government bond yields to rise above 1% on a sharp rise. a policy decision is expected later on Tuesday.

“Obviously this may turn out to be something of a red herring and they may leave policy unchanged, instead offering a strong view that changes to the yield curve control limit are imminent,” said Chris Weston, head of research at Pepperstone.

“All things being equal, a move to raise the YCC limit from 1% to 1.5% should bring in more (yen) buyers and push USD/JPY and the crosses down through the trade.”

Against the euro, it was only recently at 158.24 and on Monday similarly rose to a more than weekly high of 157.70 per euro. The Australian dollar was last bought at ¥94.50.

In other currencies, the dollar fell sharply after increased risk appetite, with Israel’s ground offensive in Gaza appearing less extensive than previously feared.

The dollar index last stood at 106.20.

Israeli armored forces attacked the Gaza Strip capital from two directions on Monday, targeting the main road linking it to southern Gaza, witnesses said.

“Israeli forces launched the invasion of Gaza in a restrained manner – slower and more deliberate than a quick campaign designed to win quickly,” said Thierry Wizman, global FX and interest rate strategist at Macquarie.

“Traders … hope this restraint will leave the door open for a diplomatic de-escalation deal.”

The euro looked set to reverse two straight months of losses with a modest gain of 0.4% for October, with the single currency last steady at $1.0611.

Data on Monday showed that inflation in Germany eased markedly in October, while a separate report on the same day showed that Europe’s biggest economy shrank slightly in the third quarter.

Spain’s 12-month inflation was unchanged at 3.5% in October from the previous month, Monday’s preliminary data also showed.

The data comes ahead of eurozone inflation data due later on Tuesday.

Sterling fell 0.07% to $1.2159 and was poised to give up more than 0.3% for the month, ahead of the Bank of England’s interest rate decision later in the week, which is expected to keep the central bank on hold.

“Central banks around the world are likely to respond to local economic conditions rather than take cues from the Fed, and we believe the Bank of England and the European Central Bank will cut rates before the FOMC,” Wells Fargo economists said.

“We continue to believe the US dollar can broadly strengthen into early 2024.”

Elsewhere, the Australian dollar fell 0.09% to $0.6368, heading for a monthly loss of more than 1%.

The New Zealand dollar lost 0.15% to $0.5835 and was set to fall 2.7% for October, under pressure from fragile global risk-on sentiment and surprisingly low domestic inflation in the third quarter reduced the chance of another rate hike.

(Reporting by Rae Wee Editing by Shri Navaratnam)

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