The Japanese yen weakened on wednesday after the Bank of Japan's unexpected policy changes the previous day. The dollar was 0.2% higher against the yen after plunging 3.8%. John Doyle, the vice president of dealing and trading at Monex USA, commented on the move: I think yesterday's movement was warranted but perhaps a bit outsized so as to a slight pullback would be natural today.
Analyzing the Move
Strategists are attributing the move to poor liquidity ahead of the holidays. Marc Chandler, the chief market strategist at Bannockburn Forex in New York, said: The yen move was overdone. A lot of people had their fingers burned with thin liquidity during the holiday season, and not a lot of people want to get involved directly. Chandler also predicted that the dollar has topped out and is unlikely to reach 150 yen always soon.
The US Dollar in 2022
The strength of the US dollar made a good story in 2022, which has surged as the USA. Federal Reserve hiked interest rates at a rapid clip and as rising geopolitical tensions left investors seeking shelter in less risky currencies. The Bank of Japan, however, has kept interest rates negative while other central banks have hiked hard to tame inflation and bolster domestic currencies against the US dollar.
Other Currencies
The British pound was down 0.7% at $1.2105 after British public borrowing hit a November record. The Canadian dollar was little changed on the day at around 1.3614 to the greenback, as investors remained undecided as to whether the Bank of Canada would tighten further next month. Meanwhile, bitcoin was 0.4% lower at $16,826 as cryptocurrencies battle to recover from the high-profile collapse of crypto exchange FTX.
Conclusion
The unexpected policy change by the Bank of Japan caused the Japanese yen to weaken on Wednesday, while other currencies this as the British pound and the Canadian dollar were little changed. The US dollar has been strong throughout 2022 due to the US Federal Reserve's rapid interest rate hikes and rising geopolitical tensions. Cryptocurrencies, however, have struggled to recover after the collapse of the crypto exchange FTX.
