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Yen pulls back after BOJ policy change triggers a rally

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By Saqib Iqbal Ahmed

NEW YORK (RockedBuzz via Reuters) – The yen fell in a choppy session on Wednesday, shedding some of the ground it gained the day before as a surprise policy shift by the Bank of Japan lifted the Japanese currency 4% against the dollar.

The BOJ decided on Tuesday to change its “yield curve control” policy even though it kept the broad policy settings unchanged. It is letting 10-year yields move 50 basis points either side of its 0% target, wider than the previous 25 basis point range.

The dollar was up 0.4% against the yen on Wednesday after tumbling 3.8% in the previous session, the biggest one-day drop against the Japanese currency in 24 years.

“I think yesterday’s move was justified, but perhaps a little outsized, so a slight pullback would be natural today,” said John Doyle, vice president of trading and trading at Monex USA.

Given the size of Tuesday’s move in the dollar-yen, traders should expect the pair to be volatile, Doyle said.

Strategists attributed some of the move to tight liquidity ahead of the holidays.

“The yen’s move has been exaggerated. A lot of people have burned their fingers and with low liquidity this holiday season, not many people want to get involved right away,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

“I think the dollar has peaked. I don’t think we’re going to 150 (yen) anytime soon,” Chandler said.

The story of 2022 was the strength of the dollar, which surged as the US Federal Reserve rapidly raised interest rates and rising geopolitical tensions prompted investors to seek refuge in less risky currencies.

The BOJ, long concerned with boosting price growth to ward off a risk of deflation, has been an outlier among central banks this year. It kept interest rates negative, while other central banks sharply increased the inflation rate to tame and strengthen national currencies against the US dollar.

The pound slipped against the dollar and the euro on Wednesday as UK government borrowing hit its November record, underscoring challenges to the UK economy. The British pound fell 0.8% to $1.2091.

The Canadian dollar was little changed on the day at around 1.3595 against the greenback as investors remained undecided as to whether the Bank of Canada would tighten further next month after mixed inflation data for November.

Meanwhile, bitcoin fell 0.6% to $16,791 as cryptocurrencies struggle to recover from steep losses caused by the high-profile crash of cryptocurrency exchange FTX.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Harry Robertson in London and Ankur Banerjee in Singapore; Editing by Lincoln Feast, Tomasz Janowski, Kirsten Donovan, Barbara Lewis and Jonathan Oatis)