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Yen Falters Against Stronger Dollar, BoJ’s Further Rate Slashing Attempts May Go In Vain

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February 1
9:17 PM 2016

The US Dollar and Euro have gained some value in Asia Trade on Monday.  With the recent appreciation, market has started to feel the brunt from Bank of Japan's (BoJ) move to adopt negative interest rates on Friday.

The USD/JPY exchange rate has raised +0.15% to as high as ¥121.49 and finally stabilized at ¥121.24. The pair has recorded value of ¥121.04 on late Friday in New York.

The BoJ has imposed a minus 0.1% interest rate on a portion of commercial banks' yen deposits at the central bank. The move has been aimed to encourage more lending on business and infrastructure development after witnessing the slowest economic growth in recent years. However, dollar's downside support against the yen is believed to remain solid for some time to come, predicts MarketWatch quoting Marito Ueda, director of FX Prime by GMO.

Besides, some analysts believe that the BoJ's surprise easing has been aimed (at least partly) at forestalling the yen's appreciation. Their belief is based on the fact that yen has remained firm to strongest in a year during last month.

At that time, yen has been witnessed to gather safe haven flows amid a rout in global equity and crude oil market. The US dollar has touched 115.97 yen, the weakest value since January 2015.

However, Dollar has hit a rough six weak high to 121.70 yen in New York on Friday due to the mounting expectations centering widened Japan- US interest rate gap. BoJ Governor Haruhiko Kuroda has been reported to deny in public the possibility of lowering interest rates on current account deposits.

But finally, he has been predicted to go for a surprise move observing the market expectations towards lower rates subsidy broadly. Furthermore, Kuroda's clear statement on further rate lowering is also aimed to keep hold the currency market's attention and prevent the yen from rising, analyzes The Economic Times quoting Naohiko Baba, chief Japan economist at Goldman Sachs in Tokyo.

It is widely presumed that BoJ won't step in until dollar/yen falls into the 116 range. However, impact on further lowering the interest rate within the negative territory will be too limited.

In similar precedence, European Central Bank (ECB) has deepened negative deposit rates in December. The move has been finally considered a disappointment, reports Reuters quoting Koji Fukaya, president of FPG Securities in Tokyo.

BoJ in a sudden move has slashed the deposit rate to (-) 0.1% a few days back. While announcing the revised rate, BoJ Governor has reportedly hinted for further rate slashing in the coming days. Rate slashing in a negative range usually brings little changes. So it is widely assumed that BoJ won't intervene in the market until and unless yen reaches the 116 range against dollar.

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