The dollar stayed solid on Friday as investors braced for higher interest rates in the United States for a longer period of time, while the yen was volatile, with new Bank of Japan Governor Kazuo Ueda stating it was prudent to retain ultra-easy monetary policy.
Ueda, who was unexpectedly nominated earlier this month, warned that uncertainty about Japan’s economic recovery remained “extremely significant,” justifying the BOJ’s ultra-loose monetary policy.
The yen was turbulent on the day, swinging between gains and losses versus the dollar as investors digested Ueda’s remarks at the lower house confirmation hearing. It was recently trading down 0.03% at 134.76 per dollar.
According to figures released on Friday, Japan’s core consumer inflation touched a new 41-year high in January, putting increased pressure on the central bank to phase down its enormous stimulus programme.
Experts said Ueda’s remarks were not surprising, given that he maintained the BOJ’s present position.
According to OCBC currency analyst Christopher Wong, Ueda is expected to take a cautious and moderate approach as he analyses further data to obtain a clearer picture of Japan’s economic situation.
“It is still early days to form an impression of his policy leaning at this point.”
The unexpected appointment of Ueda as the new Governor of the Bank of Japan fueled speculation that the unpopular yield curve management programme was coming to an end.
Nevertheless, overnight statistics revealed that the number of people filing new jobless claims surprisingly declined last week, highlighting a still-tight labour market and a healthy U.S. economy.
The recent string of positive US economic statistics and aggressive Fed language has caused the dollar to recoup its year-to-date losses.
The dollar index, which compares the US currency to six other currencies, was up 0.019% at 104.580, on track for a fourth straight week of gains. The index is currently up 2.5% month-to-date.
“While slower activity and higher inflation components seem to be making the Fed’s task more difficult, labor market still remained strong which suggests that any slowdown in growth will be likely very slow,” strategists from Saxo Markets said in a note.
The euro was trading at $1.0599, up 0.04% on the day, while sterling was last trading at $1.2016, up 0.02% on the day. The Australian dollar strengthened by 0.10% to $0.681. The New Zealand dollar rose 0.14% to $0.624.