TOKYO: The dollar enjoyed a short-lived rise against the yen on Thursday after the Bank of Japan made a technical change to its asset buying programme, and remained not far from a two-year high against the euro.
The BOJ refrained from easing monetary policy as expected, despite moves in that direction last week by central banks in the euro zone, Britain and China.
Japan's central bank held its key policy rate in a range of zero to 0.1 per cent by a unanimous vote, and held off on additional easing steps, though it did tweak its asset-buying and lending programme.
It maintained the total size at 70 trillion yen ($879 billion) but pledged to buy more short-term securities while reducing the amount it offers under fixed-rate market operations.
“The BOJ was widely expected not to do anything at all, and when they did something, there was an initial reaction to it, but the move was short-lived as the forex market assessed the net effect of the bank's technical changes,” said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo,
The greenback shot up as high as 79.97 yen after the BOJ's decision was announced, but just as quickly erased the move and was last trading at 79.49 yen, about 10 ticks below its level before the announcement.
Technical support was said to lie at its 200-day moving average at 78.98, but the dollar was still well shy of its June 25 high of 80.63 yen, with Japanese exporters poised to sell on any move about 80, traders said.
Minutes of last month's Federal Reserve meeting published on Wednesday revealed that the world's biggest economy would have to worsen further before its central bank took any more easing steps. A few officials thought further stimulus was justified, but the majority remained unconvinced.
That sent the dollar index soaring to a two-year high of 83.610 overnight, and it eased slightly to 83.457 in Asia.
The euro took a breather from recent losses, holding steady at $1.2242 after it tumbled overnight to a two-year low of $1.2212 on the EBS trading platform after the Fed minutes.
The dollar index could move for a test of its 2010 peak at 88.71, while the euro drop towards 1.20 in the near-term, traders said.
The single currency has fallen about 5.5 per cent so far this year, already exceeding losses chalked up in 2011, when it declined more than 3 per cent.
Adding to investors' uncertainty about Europe's progress to address its debt crisis, it appeared there would be no quick judgment from a German court on the euro zone's bailout fund.
Apart from concerns over the area's decision-making process, last week's interest rate cut by the European Central Bank also undermined the euro, raising chances it may become a funding currency of choice for buying higher-yielding assets.
In Spain, anti-austerity protests in Madrid turned violent after that country unveiled new measures to slash 65 billion euro from the public deficit by 2014 as Prime Minister Mariano Rajoy yielded to EU pressure to attempt avoiding a full state bailout.
BEARISH JOBS REPORT HITS AUSSIE
The Australian dollar tumbled after data showed an unexpected drop in Australian employment in June, adding to concerns about its economic outlook prompted by a slowdown in China, Australia's biggest trading partner.
The Australian dollar was last down 0.6 per cent from late US trade on Wednesday at $1.0185, down from around $1.0240 just before the data were released, as investors priced in a greater chance of further interest rate reductions.
The Reserve Bank of Australia (RBA) cut rates in both May and June to take them to 3.5 per cent, but held steady at its July meeting. On Thursday, RBA Deputy Governor Philip Lowe underscored that the recently strong local currency has pushed down prices of imported goods and helped restrain inflation.
Speaking at an economic conference, Lowe said the high Aussie dollar had played an important role in stabilising the economy and it was hard to argue that the unit was over-valued given Australia's very high terms of trade.