The Japanese yen fell against the dollar on Friday after the Bank of Japan countered a wave of tightening and maintained its ultra-accommodative stance, adding to rising volatility in foreign exchange markets that were hit by a series of rate hikes this week.
Foreign exchange markets have been hit by one of the biggest monetary policy tightening in decades, including the Federal Reserve’s midweek rate hike of three-quarters of a percentage point, the largest since 1995, and the surprise decision by the Swiss National Bank to cut interest rates by 50 basis points. to increase.
The Bank of Japan swam against the tide on Friday, keeping its policy settings unchanged and promising to defend its 0.25 percent bond yield with unlimited buying.
“Everyone expected the BOJ to do something. They didn’t,” said Boris Schlossberg, director of FX strategy at BK Asset Management.
The yen, which hit a 24-year low of 135.6 per dollar on Wednesday, collapsed in response to the BOJ’s decision. The Japanese currency last fell 2.09 percent against the dollar at 134,885 yen, and was 1.62 percent lower against the euro.
The 135 level was a technical resistance point for the yen, and breaking it could force many shorts against the dollar-yen currency pair to cover their bets, potentially allowing the pair to climb to 137 or 140, Schlossberg said.
“If we really start creeping higher from this point, I think it will definitely force some of these early shorts out of business,” he said.
Graphics: yen nearing 24-year low
The dollar rose from a week-long low against major competitors and bounced off a two-day decline following the Fed’s midweek rate hike of 75 basis points, a move expected by markets as the Fed tried to tame stubbornly high inflation.
The dollar index, which measures the currency against a basket of six rivals, rose 0.732 percent to 104.64, putting it on track for a weekly gain of about 0.4 percent ahead of a long weekend in the United States.
“Today we see a rebalancing of the market,” said Simon Harvey, head of FX analysis at Monex Europe. “The markets are still adjusting to the central bank meetings all week.”
The euro last fell 0.53 percent to $1.0496 against the dollar.
The Swiss National Bank’s surprising decision to raise interest rates by half a percentage point continued to reverberate in the markets, with the franc hitting 1.0098 against the euro, its highest point since April 13, as investors bet that the SNB would not try to hold back the strengthening currency as it has in the past.
The dollar abandoned previous gains against the Swiss currency, losing 0.31 percent to 0.9696 francs, after its biggest drop in seven years against the Swiss currency in the previous session.
“The surprising rate hike in Switzerland, as well as the European Central Bank’s announcement that it is working on a tool to avoid fragmentation of European bond markets, will help limit the USD’s strength around current levels,” UBS strategists said. Global Wealth Management’s Chief Investment Office said in a research note.
Sterling fell 0.99 percent to $1.2229, returning most of its gains from the moment the Bank of England decided to raise interest rates again, albeit by less than many in the market expected, along with an aggressive signal about future policy actions.
Currency markets are also experiencing a massive drop in risk sentiment, causing stock markets to run amok.
The Australian dollar, which is highly sensitive to the broad global investment mood, fell 1.53 percent to just below $0.6938 after stock markets in Asia collapsed, while Wall Street rose higher after a strong sell-off on Thursday.