Yen touches 6-week low, eyes on ECB

LONDON: The dollar touched a six-week high against the yen on Thursday, bolstered by reports of a doubling of initial expectations for economic stimulus from Tokyo and bets that the Bank of Japan (BoJ) will ease policy next week.

After sinking briefly below $1.10 on Wednesday, the euro recovered to trade around a quarter of a per cent higher on the run-in to an ECB meeting that currency markets seem confident will deliver no great new easing to weaken the currency.

In broader terms, the dollar is trading around its strongest since March against a basket of currencies, driven in the past week by a reheating of expectations for another rise in US interest rates before the end of the year.

With the euro moored to a range of around $1.10-$1.12, that has chiefly been playing out in the dollar-yen exchange rate.

“The market expects something in easing from the BOJ next week, so that is weighing on the yen,” said Dominic Bunning, a currency strategist with HSBC in London.

“Fed pricing has also shifted quite a bit, from a 10 per cent chance for a rise this year after the Brexit vote to nearly 50 per cent. So in terms of dollaryen you’ve got that sort of double whammy for the yen.”

A broad recovery in risk appetite and speculation about M&A-related flows have also weighed on the yen since investors fled to the traditional security of Japan after Britain’s vote last month to leave the European Union.

Gains in Japanese equities, which were supported by media reports that the Japanese government was planning to compile a stimulus package of at least 20 trillion yen, dragged on the yen.