Yen Slips to One-Week Low as Kiwi Jumps on NZ Inflation Data
The Japanese yen slipped to a one-week low against the dollar on Wednesday, while the New Zealand dollar jumped after a higher-than-expected inflation reading pushed prospects of policy easing further out.
The yen fell to 139.41 per dollar, its lowest level since July 5. The kiwi dollar jumped to 0.6315 per dollar, its highest level since July 1.
The yen’s weakness came as investors continued to assess the outlook for Japanese monetary policy. The Bank of Japan has said it will maintain its ultra-loose monetary policy stance until it achieves its 2% inflation target. However, the latest inflation data showed that core inflation, which excludes volatile items such as food and energy, remained at 2.1% in June, below the BOJ’s target.
The kiwi dollar’s strength came after data showed that New Zealand’s annual inflation rate rose to 7.3% in the second quarter, the highest level since 1990. The data pushed back expectations for when the Reserve Bank of New Zealand might start cutting its cash rate.
The RBNZ has said it will continue to raise interest rates until inflation falls back to its 2% target. However, the latest inflation data suggests that the central bank may need to wait longer before it starts easing policy.
The strength of the kiwi dollar is also being supported by the country’s strong economic fundamentals. New Zealand’s economy grew by 0.6% in the first quarter, and economists expect growth to remain strong in the second quarter.
The latest movements in the yen and the kiwi reflect the different monetary policy paths of the two countries. The BOJ is committed to maintaining its ultra-loose monetary policy stance, while the RBNZ is more likely to start easing policy in the near future.
The strength of the kiwi dollar is likely to continue to weigh on the yen in the near term. However, the yen could find support if the BOJ signals that it is willing to adjust its monetary policy stance.