Forex Market Update: Yen Edges Up Against the Dollar, but Gains are Expected to be Short-Lived
U.S. dollar edged lower against the Japanese yen on Wednesday as weakness in Japanese equities triggered profit booking from short term speculators.
At around 4:50 a.m. GMT, the U.S. dollar traded at 95.76 yen down from 96.08 yen in New York on Tuesday. According to the Wall Street Journal, traders said that the U.S. dollar’s jump to nearly 3-½ year high last week was too fast and market participants were looking at an opportunity to take a pause.
“We have seen some profit taking in dollar/yen which has helped the yen recover ground,” said Adam Myers, European head of FX strategy at Credit Agricole, according to Reuters.
However, any sharp rebound for yen is highly unlikely as the market participants expect more aggressive economic stimulating measures from the Bank of Japan—in case Kuroda is approved as the governor of Bank of Japan. Further loosening of monetary policy will increase the supply of yen in the system which in turn, weakens the currency.
“But with the nomination process likely to go through, even for Iwata, we could see that end and dollar/yen will resume its uptrend,” added Myers
Later this week the Japanese parliament will vote to approve the new Bank of Japan leadership troika: Mr. Iwata as a deputy governor, governor nominee Haruhiko Kuroda and another deputy contender Hiroshi Nakaso.
While Kuroda has already made it clear that the BOJ would do everything possible to lift the country’s inflation rate to 2%, deputy-governor hopeful Iwata is also known for his extremely dovish views.
On Tuesday, Japan’s major opposition party, the Democratic Party of Japan, warned that it will vote against Mr. Iwata’s appointment as deputy governor due to his extremely dovish stance on monetary policy. However, his appointment is almost certain as he enjoys support from other opposition parties as well.