Yen falls on dovish BOJ as markets await Fed decision

The yen lost more than 1% against the dollar on Friday after the Bank of Japan bucked the trend among other major central banks and continued ultra-low interest rates, while the greenback strengthened after US data showed inflation was still running hot.

The dollar was under pressure this week ahead of the Federal Reserve's policy-setting meeting on November 1-2. The central bank is expected to raise rates for a fourth time by 75 basis points before "pivoting" to a slower pace of rate hikes that the market has begun to price in. "The bottom line is that if the Fed doesn't move toward a more forward-looking stance, the result will be a more restrictive monetary policy than would otherwise be necessary," said Admir Kolaj, an economist at TD Securities. The dollar index was on track for a weekly decline of around 1%. Speculation over the timing of the Fed's rate hike weakened the dollar, but it gained against the yen after BOJ Governor Haruhiko Kuroda said Japan was not close to a rate hike and that inflation in the country would remain below the 2% target for years to come. The yen fell as much as 1.07% after the BOJ's decision. At 15:00 EDT (1900 GMT), the Japanese currency was down 0.83% at 147.5. For the week, the yen lost about 0.17%. Kuroda rejected the view that the BOJ's yield cap was responsible for the yen's recent sharp declines, reinforcing views that the central bank will not use rate hikes to support the currency. "The BoJ still carries the flag as the most accommodative G7 central bank," said Stephen Innes, managing partner at SPI Asset Management. "That leaves USDJPY at the mercy of broad dollar trends that reflect movements in US fixed income." Sterling rose against the dollar, adding to gains made earlier in the week following the appointment of Rishi Sunak as Britain's third prime minister in two months. Sterling rose 0.42% to $1.1612, with a weekly gain of around 2.65%. The euro fell 0.1% to $0.9955, adding to Thursday's decline of more than 1%. The European Central Bank raised interest rates by 75 basis points as expected, but adopted a more dovish tone on the rate outlook. The euro gained around 0.93% on the week. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!