SINGAPORE- The yen fell 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, though looked it set to end July with its first monthly increase since March.
Elsewhere in Asia, data on Monday showed China’s manufacturing activity fell for a fourth straight month in July, though sentiment was buoyed by news of further measures to spur the country’s sputtering economic recovery.
The yen fell about 0.5 percent to 141.92 per dollar in Asia trade, though looked set to end the month with a more than 1.5 percent gain.
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 defense of a long-term rate cap at the conclusion of its policy meeting.
The dollar eventually ended the Friday session with a 1.2 percent gain against the yen, though that was after it had slid 1 percent to a session-low of 138.05 yen.
“The BOJ threw a curve ball into the market … with its cosmetic change to YCC – in essence, it was a brilliant move by the central bank, and they’ve managed to bridge the volatility that would come with a straight change to a -/+ 1 percent range in the YCC band,” said Chris Weston, head of research at Pepperstone.
“They’ve given themselves all the flexibility should they wish to tighten policy in the future without tidal waves in global bond markets.”
The move could also have seismic implications for global money flows, since a cheap yen that has been inexpensive to borrow has been a mainstay of capital market funding for years and it now faces upward pressure from rising Japanese yields just as global rates seem to peak. – Reuters
