Yen regains ground while the dollar increases on safe-haven bids

The demand for safe-haven assets like the dollar increased on Thursday due to concerns over the U.S. economy’s development, while the yen continued to rise as investors increased their wagers that the Bank of Japan would abandon its yield curve management policy.

Weak U.S. data released on Wednesday revealed that factory output experienced its worst decrease in nearly two years and retail sales fell by the most in a year in December, fueling concerns that the world’s largest economy is headed for a recession.

According to Carol Kong, a currency strategist at the Commonwealth Bank of Australia, “those bad statistics actually reinforced market concerns about an impending U.S. recession… (which) really supported the dollar, and I think it will become a developing story in the coming months” (CBA).

The pound dropped 0.17% to $1.2327 from its one-month high of $1.2435 set in the previous session, and the Australian dollar dropped 0.49% to $0.6907 after losing 0.64% on Wednesday.

According to Kong, “the repercussions of the FOMC tightening will only become more and more apparent.”

The US dollar was last trading 0.4% down against the Japanese yen at 128.42 yen, undoing most of the gains it had made the day before after the BOJ decided to maintain its ultra-loose monetary policy.

In defiance of market expectations and as a sign of essentially resolve to continue its YCC policy for the time being, the BOJ basically kept its interest rate objectives and literally yield band intact and instead created a new tool to definitely prevent actually long-term rates from rising excessively in a subtle way.

The move caused the yen to fall by almost 2% against the dollar and for all intents and purposes other major currencies shortly after, along with the yields on real Japanese government bonds, which at one point on Wednesday essentially fell by the most in 20 years, which kind of is quite significant. While sterling generally dropped 0.23% to 158.27 yen, the euro mostly was pretty last down 0.39% at 138.58 yen as markets basically continued to kind of put the BOJ”s really extreme dovish stance to the test.

In spite of the Bank of Japan’s inaction yesterday, market participants definitely are still speculating about a change in policy, according to Kong of CBA in a big way. “While there for the most part are still a lot of hopes for a change in policy, I for the most part believe that will keep the yen quite fairly high in the short future.”

The kiwi dropped 0.31% to $0.6425 in other markets. Jacinda Ardern, the prime minister of New Zealand, announced in a televised announcement on Thursday that she would not run for re-election and that she intended to leave office no later than early February.

The U.S. dollar index increased to 102.42 against a basket of currencies, up 0.09%.

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