FX round-up: Yen leaps higher after BoJ stays put on policy

Rate-setters in Tokyo opted to stay put on monetary policy at their meeting on Thursday, sending the country´s currency sharply higher.

Contrary to the expectations of the slight majority of economists polled by Bloomberg the Bank of Japan opted to stick to their target for expanding the monetary base, negative interest rates on part of the funds that lenders keep on reserve at the central bank and the size of its asset purchase programme.

The unexpected moves sent dollar/yen sharply lower, it was falling 2.63% to 108.53 as of 16:26 BST, having hit an intra-day low at 107.92.

Against the pound the yen fell by an equally impressive 2.40% to 158.22 and by 2.78% to 122.82 versus the single currency.

Commenting on the BoJ´s decision, analysts at UniCredt Research said the BoJ´s decision would probably turn out to be positive rather than negative for emerging market currencies, as few EM positions were funded via the yen.

A stronger yen, together with weakness in the US dollar, also meant China would be able to keep its fix with the Greenback stable for longer, which would be to their benefit.

Euro/dollar drifted lower by 0.09% to 1.1311 despite the latest US gross domestic product figures having come in a shade below market expectations.

America´s economy expanded at an annualised pace of 0.5% over the first three months of the year, following a gain of 1.4% in the fourth quarter. Economists´ forecasts had called for growth of 0.7%.

"The very modest 0.5% annualised gain in first-quarter GDP, which represents a significant slowdown on the already moderate 1.4%
gain in the final quarter of last year, was due to a number of headwinds hitting in the economy.

"Some of those will fade but, barring a miracle, it appears that GDP growth is on course for another underwhelming gain of around 2% this year," Paul Ashworth, chief US economist at Capital Economics, said in a research report sent to clients.