Volatile Equities Give Yen a Bounce

The Japanese Yen eased against the U.S. Dollar after obtaining the single largest day’s gains in more than three year’s following the Bank of Japan’s decision to hold the status quo rather than take any additional stimulus measures. Markets were disappointed with the decision, having expected that the central bank would extend the duration of its capital operations scheme which would have served to mitigate recent and extreme volatility in Japanese government bonds. The continued volatility in Japan’s bond market has investors concerned that the government’s attempts to stimulate the Japanese economy will falter.

Since late last year, the Yen has traded about 20% lower against the greenback, supported by the government’s announced intention to revive the economy; most of the declines came following the Bank of Japan’s news in April of a very aggressive policy of stimulus. The recent sharp sell-off in Japan’s equity market has given investors a reason to cancel their short positions in the Yen however. As reported at 12:03 p.m. (JST) in Tokyo, the USD/JPY pair was trading at 96.335 Yen, a gain of 0.4% from late trading in New York and moving farther from earlier struck low of 95.60 Yen. The EUR/JPY pair had dropped 2.4%, and was trading at 128.04 Yen.