Japanese yen rises to two-week high vs dollar on talk of BOJ policy tweak

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The Japanese yen climbed to a two-week peak against the dollar on Monday after a report said the Bank of Japan is considering tweaking its yield curve control policy to allow the 10-year Japanese government bond yield to rise above 1% when it concludes its meeting on Tuesday.

The Nikkei report pushed the yen to 148.81 per dollar, its strongest level since Oct. 17. The greenback, which has been on the defensive all day, was last down 0.4% at 149.065 yen.

Surging global rates have heightened pressure on the BOJ, which kicked off its two-day monetary policy meeting on Monday, to change its bond yield control policy, in which it maintains a -0.1% short-term interest rate target and a 0% cap on the 10-year bond yield.

“If the BOJ does not do anything tomorrow, which I think that’s what economists expect, and just wait until December, I think the dollar jumps right back versus the yen,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

But with Monday’s action, Chandler thinks Japanese intervention seems unlikely, although he noted that in the last few weeks the BOJ has intervened in the bond market as an alternative.

“The key to intervention is excessive volatility and the BOJ has been saying this: that it’s not targeting a particular level. So that’s taking the magic away from the 150 mark,” he said.

Aside from the BOJ, market participants are looking ahead to interest rate decisions from the U.S. Federal Reserve and the Bank of England (BoE).

A slew of purchasing managers’ surveys, euro zone inflation and GDP data, and U.S. nonfarm payrolls are also due for release this week.

“If consumer data domestically hadn’t been so strong last week, we’d probably be looking at a bigger slide for the dollar, but markets are still finding it quite difficult to discount the resilience of the U.S. economy,” said Helen Given, FX trader at Monex USA in Washington.

Analysts also pointed to the U.S. Treasury’s quarterly refunding announcement on Wednesday that could move both the bond and currency markets.

That comes as mounting deficits and a heavier interest rate burden have substantially increased the U.S. Treasury’s funding needs. Since the last announcement in August, borrowing rates have spiraled to their highest since 2006-07.

The dollar index was last down 0.4% at 106.11, after earlier falling to a one-week low of 106.06, hurt by a pickup in the euro. The euro was last up 0.5% at $1.0615.

The U.S. Treasury on Monday announced borrowing estimates of $776 billion for the fourth quarter, lower than the $852 billion forecast announced on July 31, due to expectations of higher receipts.

The greenback slightly extended losses after the announcement.

Later this week, the Fed and BoE are both expected to keep rates steady so, barring any surprises, the focus will be on the message from policymakers.

The pound was up 0.4% at $1.2164.

U.S. nonfarm payrolls data on Friday will also be important for expectations of the Fed’s rate hike path. Wall Street economists are expecting new U.S. jobs of 188,000 for the month of October, according to a Reuters poll.