Forex Yen sinks on report of Bank of Japan stimulus expansion

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Yen sinks on report of Bank of Japan stimulus expansion

By Reuters / Reuters   | April 22, 2016 : 4:19 PM MYT  

LONDON (April 22): The yen skidded by over 1% to hit a 2½-week low against the dollar on Friday, after a report said the Bank of Japan was considering helping banks by applying negative rates to its lending programme for financial institutions.
The BOJ may consider the new step if policymakers decide to lower further the negative 0.1% interest rate applied to some bank reserves parked with the central bank, Bloomberg reported on its website.
The yen, often used as a safe haven at times of market turbulence, has gained around 10% against the dollar since the end of January, even though the BOJ added negative interest rates to its stimulus programme in February.
But it weakened 1.2% on Friday to 110.76 per dollar after the report, leaving it headed for its worst week in 12, with an almost 2% fall.
The BOJ's next two-day policy review ends on April 28.
"We're seeing some lightening of speculative long yen positions ahead of next week's meeting, and that's been encouraged by these reports that the BOJ is considering additional easing," said Bank of Tokyo-Mitsubishi UFJ currency economist Lee Hardman.
"It's fuelling expectations that the BOJ is going to act more aggressively next week."
In a separate official BOJ semiannual report assessing Japan's financial system, the central banks said its negative interest rate policy will weigh on financial institutions' profits for the time being, though they have the strength to continue taking on risk.
The yen also fell over 1% against Europe's single currency, to 124.93 yen per euro.
Against the dollar, the euro fell 0.2% to a one-week low of US$1.1265, with traders citing a worse-than-expected German purchasing managers' index (PMI) survey for weakness.
The single currency had gone as high as US$1.1399 on Thursday during a European Central Bank (ECB) news conference, then weakened again to leave it trading more or less where it was before.
The ECB held policy steady on Thursday as expected. ECB President Mario Draghi said the central bank's policy of printing money and keeping borrowing costs at rock bottom was working, adding that interest rates would stay at current record lows for a long time.
"Little was expected of the ECB yesterday and little was delivered," wrote ING analyst Chris Turner in a note to clients, adding that he expected the euro to trade in a narrow range around US$1.13.