Yen rises on report of Japan govt move for more flexible inflation target

By Reuters   December 18, 2022 | 07:23 pm PT
Yen rises on report of Japan govt move for more flexible inflation target
Banknotes of Japanese yen and U.S. dollar are seen in this illustration picture taken September 23, 2022. Photo by Reuters/Florence Lo
The yen climbed on Monday on news that the Japanese government is set to revise a joint statement with the Bank of Japan (BOJ) over the latter's inflation target, potentially paving the way for a tweak in the BOJ's ultra-loose monetary policy.

The yen was last 0.6% stronger at 135.91 per dollar, after having touched a high of 135.80 earlier in the session.

Prime Minister Fumio Kishida is aiming to make the BOJ's 2% inflation target a more flexible goal by revising its decade-old joint statement with the central bank, Kyodo news agency reported on Saturday.

The current statement commits the BOJ to achieving its inflation target "at the earliest date possible", and the BOJ has steadfastly stuck to its dovish monetary policy. That stance and the resulting interest rate differentials with the rest of the world has caused the yen to plunge more than 15% this year.

"I think the upshot is, this perhaps provides timely flexibility, but it doesn't bind monetary policy bias one way or another," said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

"And so at the end of the day, it doesn't necessarily have an imminent or an outsized impact on the yen, at least until clarity emerges on intent and execution."

Elsewhere, the dollar edged lower in early Asia trade, with sterling last 0.29% higher at $1.2175, after falling 1% last week as investors bet that the Bank of England (BoE) might be getting close to the end of its rate-hike cycle.

The euro gained 0.14% to $1.0598, while the Aussie rose 0.25% to $0.6703.

The U.S. dollar index slipped 0.18% to 104.62.

A slew of central bank meetings last week saw the BoE, the Federal Reserve and the European Central Bank (ECB) each raising rates by 50 basis points, with the Fed and the ECB delivering hawkish messages and pledging more hikes ahead, even at the risk of hurting growth.

U.S. business activity contracted further in December as new orders slumped to the lowest level in just over 2-1/2 years, S&P Global said on Friday its flash U.S. Composite PMI Output Index.

In China, President Xi Jinping and his senior officials pledged to shore up the country's battered economy next year, as it grapples with a worsening spread of COVID infections after abruptly ending many key tenets of its zero-COVID policy.

The Chinese offshore yuan was last marginally higher at 6.9720 per dollar.

"I think the pace of easing has just been too rapid," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"In the near term, economic data will continue to weaken and to show the COVID-related disruptions, and I think if we do see a further deterioration in the economic data, then markets will probably rethink their optimistic outlook for the Chinese economy."

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