Dollar Slips Against Yen As BOJ Expectations Faded

The dollar slipped against the yen during the course of Thursday’s session as expectations started waning over BOJ’s stimulus package this week, as well as after the U.S. Federal Reserve left short of flagging a near term rate hike.

The prime minister of Japan announced an unexpectedly large 28 trillion yen stimulus package, which sent central bank struggling to compare it with aggressive monetary easing. In addition, expectations on the “helicopter money” — providing cash directly to business and consumers mounted.

Further, the government plans a direct fiscal spending of 7 trillion yen with sources citing to help fund the stimulus package, which only fall for a quarter of the total package that could disappoint investors bracing for bigger outlays given the possible headline figure.

Meanwhile, the greenback has seen declines of about 0.9 percent to end the session at 104.48 yen.

“People were thinking that the larger the fiscal stimulus package, the more likely that the government would have to coordinate with the BOJ and that would increase the likelihood of some form of helicopter-money-type announcement tomorrow,” said Bank of Tokyo-Mitsubishi UFJ currency economist Lee Hardman, from London.

“But the reality is that the BOJ won’t be making that kind of announcement … The market was too optimistic in expecting more aggressive easing from Japan, and those expectations are being pared back.”

According to analysts, the yen might be in for a volatile session on Friday, while the greenback could conceivably test the 2 1/2 –year low of 99 yen after the effect of the Britain’s leaving the European Union.

“Investors will be closely watching not just the statement, but (BOJ Governor Haruhiko) Kuroda’s press conference after the meeting ends, for clues to future policy,” said Kumiko Ishikawa, senior FX analyst at Gaitame.Com Research Institute in Tokyo.

Dollar Survey

In a recent survey of Citi’s clients and financial institutions held earlier this month, data showed about 80 percent are expecting the greenback to slump more than 3 percent against the yen if the Bank of Japan resist on Friday and does not show any further signals in September.

Apparently, more than 30 percent are expecting that the decline could fall more than 4 percent.

After the Fed’s two-day policy meeting on Wednesday, it confidently said that there are no possible shocks to the U.S. economy, suggesting that a raised in interest rates as early as September is possible though there were no confirmation.

The dollar index, which measures the U.S. unit against a basket of other major currencies, dropped by about 0.7 percent to a two-week low of 96.343.

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