The Bank of Japan (BOJ) initiated its two-day rate-setting meeting on Thursday, leaving traders on edge about the possibility of Tokyo intervening in currency markets while policy deliberations are in progress. The yen has been pinned on the weaker side of 155 per dollar for the past few days, but a buoyant dollar finally broke above the key 155 yen level on Wednesday, reaching its highest point since 1990. Intense speculation about intervention from Japanese authorities to support the yen has hampered the dollar’s rise, as some market participants view this level as a line in the sand that could prompt Tokyo to take action.
The breach of the 155 yen level coincides with the BOJ’s meeting to discuss monetary policy, although expectations are for the central bank to maintain its short-term interest rate target unchanged following its landmark exit from negative rates last month. Analysts anticipate a marginally hawkish outcome from the meeting, with continued expectations of gradual policy tightening and a low terminal policy rate making it difficult for the yen to appreciate significantly, even at historically depressed levels.
BOJ Governor Kazuo Ueda stated earlier this week that the central bank will raise interest rates again if trend inflation accelerates toward its 2% target as anticipated. In the broader market, the dollar has regained some of its losses after a slight tumble earlier in the week sparked by positive business activity data from the euro zone and the UK, which had in turn boosted the euro and sterling. However, both the euro and sterling have since retreated slightly.
The Australian dollar gained ground on Thursday, supported by receding bets of rate cuts from the Reserve Bank of Australia (RBA) this year after consumer price inflation slowed less than expected in the first quarter. The New Zealand dollar also rose slightly against the US dollar.
