FX Roundup: Yen continues decline against dollar

The dollar continued its uptick against the yen on Tuesday, a day after Japan entered a technical recession.

At 1552 GMT, the dollar extended gains against the yen by another 0.24% changing hands at JPY123.47, as preliminary data released overnight suggested the world's third-largest economy saw a decline in growth for two consecutive quarters.

Growth fell a revised 0.7% in the second quarter on weak domestic demand. On a quarterly basis, Japan's economic output fell 0.2% in the third quarter versus the quarter before, weaker than forecasts of a 0.1% decline.

Analysts at Barclays expect the Bank of Japan to keep its monetary policy unchanged on Thursday. “We no longer expect additional easing and would expect further easing only as a reaction to risk events such as a sharp yen appreciation, a worsening in inflation outlook, some political pressure, or a significant deterioration in the external environment.

“We expect USD/JPY to remain range-bound around 123 in the quarters ahead, supported by expected dollar strength into a US Federal Reserve rate hike, ongoing recovery in risk assets, and portfolio rebalancing outflows from Japan.”

However, Barclays’ analysts also see downside risks from a structural slowdown in emerging markets and uncertainty about the Fed's hiking path. Elsewhere, the pound was broadly flat against the dollar exchanging at $1.5206, but up 0.40% against the euro exchanging at €1.4285. The euro also fell another 0.39% versus the dollar to change hands at $1.0647.

Jane Foley, senior FX strategist at Rabobank, said the pound is proving to be the second best performing G10 currency over the past year after the dollar. “This is related to the fact that with the exception of the Fed and the Bank of England, all other G10 central banks have eased monetary conditions this year.

“We would suggest that the recent dovish tone from BoE Governor Mark Carney at the presentation of November's Inflation Report may have been significantly influenced by a desire to avoid a punitive cost being slammed on UK economic activity via the value of sterling.”

Meanwhile, commodity linked currency crosses saw variable fortunes ranging from declines to a tepid recovery against the greenback. The Australian dollar was up 0.30% against its US counterpart at US$0.7117 partially reversing the previous session’s decline.

The New Zealand dollar fell a further 0.54% against its US counterpart to change hands at US$0.6458 while the greenback itself fell 0.07% against the Canadian dollar exchanging at CAD$1.3323.

Finally, in Latin America, the dollar traded lower against the Colombian peso (down 0.27%), Chilean peso (down 0.32%), Mexican peso (down 0.05%) and the Brazilian real (down 0.37%).