The yen weakened on Friday after the Bank of Japan (BOJ) kept its ultra-loose monetary policy unchanged, while the U.S. dollar was set to end the month with a second consecutive loss.
The BOJ announced on Friday that it will keep interest rates at rock-bottom levels, as widely expected, and did not make any changes to its yield curve control by a “unanimous vote”.
However, the BOJ said it will drop forward guidance that promises to maintain or lower interest rates.
USDJPY fluctuated after the decision, and was last down 0.5% against the dollar at 134.60
It had initially spiked after the decision, before giving up its gains.
Earlier on Friday, official data showed that core consumer prices in Tokyo, Japan’s capital, increased 3.5% in April from a year ago, exceeding market expectations in a sign of rising inflationary pressure in the world’s third-biggest economy.
“This puts pressure on the BOJ, they might do something in the near future,” said Tina Teng, market analyst at CMC Markets.
In the broader currency market, the U.S. dollar gained some support from data indicating persistent inflation in the United States, which reinforced expectations for a 25-basis-point rate hike at next week’s FOMC meeting. (FEDWATCH).
The U.S. dollar index DXY , which measures the greenback against a basket of currencies, edged up 0.1% to 101.55, though remained on course for a monthly loss of about 1%, after having dropped about 2.3% in March.
GBPUSD dipped 0.06% to $1.2492.
Data released on Thursday showed that while U.S. economic growth slowed more than anticipated in the first quarter, consumer spending, which was accompanied by a rise in inflation, picked up
The price index for gross domestic purchases, a measure of inflation in the economy, increased at a 3.8% pace after rising at a 3.6% rate in the fourth quarter, while the core PCE price index surged at a 4.9% rate after climbing at a 4.4% pace in the previous quarter.
“The Fed is widely expected to hike again next week but with inflation remaining sticky, we expect the Fed to pause for the rest of the year, dashing hopes of a policy shift in (the second half),” said analysts at Societe Generale.
In other news, the euro
EURUSD dropped 0.1% to $1.1016, but stayed close to its recent one-year high. The common currency was looking at a monthly gain of more than 1.5%.
The euro has been supported by expectations the European Central Bank still has more room to raise interest rates, in contrast with a dovish adjustment of its U.S. counterpart.
“Investors favour currencies that can offer both an ongoing domestic tightening cycle and still some room for a hawkish surprise at the coming meetings,” said ING analysts. “In that sense, the euro is one of the few currencies that can offer this combination at the moment.”
Down Under, the Australian dollar
AUDUSD was steady at $0.6630, while the kiwi
NZDUSD added 0.09% to $0.6153.