The yen soared on Friday as the Bank of Japan refused to pull the trigger aggressive policy easy and instead moved incrementally in exchange traded funds while warning about the economic risks.
USD / JPY was trading at 103.44, down 1.74%, while the AUD / USD was trading at 0.7540, up 0.49%. GBP / USD was trading at 1.3188, up 0.18%.
The Bank of Japan increased its purchase of exchange traded funds of billions of billions of ¥ 6 from ¥ 3.3 as part of a move to a more expansive and stimulate the economy policy as downside risks to the economy remain , but it remained constant to other policy instruments.
Earlier in Japan, household spending fell 1.1% in June month, compared with an expected gain of 0.4% a year on year down 2.2%. National CPI fell 0.4% in June year on year, with expectations, while the unemployment rate fell to 3.1% from 3.2%.
In Japan, industrial production increased by 1.9%, much better than the gain of 0.7% in June from month to month and retail sales fell 1.4%, slightly slower than expected decreased 1.5% and the fourth consecutive monthly decline.
Australia said the PPI data for the second quarter totaled a gain of 0.1%, below the 0.2% gain seen quarter to quarter. Also in Australia, the private sector credit rose 0.2% in June month, below the 0.5% gain seen a worrying sign
Given the drop is mainly due to a decrease in business credit.
The yen initially soared against the dollar in Thursday’s session, amid signs that the Bank of Japan could still meet market expectations by adopting measures only moderate easing in the highly anticipated meeting on Friday.
While Prime Minister Shinzo Abe unveiled a broad stimulus plan ¥ 28 billion on Wednesday, Reuters reported that the Japanese government can only provide as much as ¥ 7 billion direct fiscal stimulus. If Abe is unable to fulfill the promises of help start the economy with a broad stimulus initiative, the BoJ might feel added pressure to lower interest rates deeper into negative territory.
The US dollar index, which measures the strength of the greenback versus a basket of six major currencies, fell 0.36% to 96.34.
Overnight the dollar pared losses as investors received a full day to digest declaration of relatively neutral monetary policy of the Federal Reserve.
In more general terms, the dollar is still up 2.43% compared to its Japanese counterpart since July 12, when former Fed chairman, Ben Bernanke, reportedly outlined the ramifications of a policy monetary helicopter in the Japanese economy at a meeting in Tokyo with Abe.
Investors in global currency markets followed I reacting to the interest rate decision on Wednesday the central bank of the United States, after the Federal Open Market Committee (FOMC) left its benchmark federal funds rate unchanged in a level between 0.25 and 0.50% at the conclusion of its July policy meeting.
While noting that the risks near term to the economic outlook have declined in the last month, the FOMC said it still expects that economic conditions can not justify the gradual increases in interest rates in the short term in the coming months.
For the most part, markets interpreted the statement as a pessimistic indication that the FOMC might delay the time of its next rate hike beyond its next meeting in September. Upon release, the CME Group (NASDAQ: NASDAQ: CME) tool clock Fed reduced the likelihood that the Fed could raise interest rates in September to 18%, down from 20.3% at the beginning of the session.
Any rate increases by the FOMC this year are seen as bullish for the dollar as foreign investors accumulate in the greenback in order to take advantage of higher yields.