Anna 
The Japanese yen experienced a sharp decline on Tuesday following the Bank of Japan’s (BOJ) decision to maintain its ultra-loose monetary policy, in line with expectations. Surprisingly, the central bank did not signal any imminent change, leading to a decline in the yen’s value. In response, both the dollar and euro recorded a 1% increase against the yen, marking their most significant daily gains since the end of October. The greenback reached 144.27 yen, while the euro climbed to 157.68.
While the outcome aligned with market expectations, investors were keenly observing any signs of a potential shift from the BOJ’s dovish stance, particularly concerning negative interest rates. Hirofumi Suzuki, SMBC’s Chief FX Strategist, noted that there were expectations for policy changes and wording amendments before the meeting. However, he cautioned that the weakening yen might not establish a trend, citing anticipations for a policy revision in January-March of the next year.
BOJ Governor Kazuo Ueda, speaking at a press conference, acknowledged the gradually heightening prospects of sustainably achieving their inflation target. However, he emphasized the need to assess additional data before determining if the threshold would be met.
In the wider market, the Australian and New Zealand dollars, known for their sensitivity to risk, hovered near their highest levels in nearly five months. This optimism stems from the belief that the U.S. Federal Reserve might initiate interest rate cuts in the coming year.
The Australian dollar rose by 0.23% to $0.6724, reaching its highest level since July 31, and the New Zealand dollar gained 0.35% to $0.6233.
Minutes from the Reserve Bank of Australia’s December policy meeting revealed considerations for a rate hike. However, the bank opted to pause, citing sufficient encouraging signs on inflation and the need for more data.
In other currency movements, the pound rose by 0.2% to 1.2674, and the euro edged up by 0.1% to $1.0936. The U.S. dollar index remained relatively unchanged at 102.54, staying above last week’s four-week low of 101.75. Despite the Federal Reserve signaling potential rate cuts in 2024, some officials have pushed back against market expectations, with Chicago Fed President Austan Goolsbee stating that the Fed is not pre-committing to swift rate cuts.
Market participants are awaiting the release of the core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of underlying inflation, later this week. This data could provide clarity on whether inflation has slowed enough for the Fed to consider easing policy in the upcoming year.
