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U.S. Dollar Gains Against the Japanese Yen Following BOJ Monetary Policy Announcement

The U.S. dollar remained largely unchanged during European trading on Wednesday but saw gains against the Japanese yen after the Bank of Japan (BOJ) indicated in its latest minutes that its accommodative monetary stance was likely to continue.

One Dollar Bills
One Dollar Bills

At 02:35 ET, the Dollar Index, which tracks the value of the U.S. dollar against a basket of six other currencies, was largely flat at 103.870, above its lowest level since mid-June at 103.44 on December 14th.

The USD/JPY exchange rate rose 0.3% to 133.86, rebounding after falling as low as 130.58 just over a week ago when the BOJ announced the loosening of its 10-year Japanese government bond yield policy band. This led to speculation that the central bank was planning to tighten its ultra-loose monetary policy. However, according to the minutes of the December meeting, the BOJ's change in stance was meant to smooth the functioning of the Japanese government bond market, not to change the trajectory of policy.

This news has had a negative impact on the value of the Japanese yen, particularly against the dollar, as it suggests that the ultra-accommodative policy will continue. However, the losses have been limited due to holiday conditions and a lack of belief that the BOJ can maintain this stance long-term, especially given that Japan's consumer inflation reached a four-decade high of 3.7% in November.

There are several U.S. economic releases scheduled for Wednesday, including pending home sales, the Richmond manufacturing index, and the Redbook. Analysts at ING stated that they doubt the data will have a significant impact on markets during the low-volatility environment of the holiday season. Instead, they believe that news from China and the ongoing energy crisis are more likely to drive any significant moves.

EUR/USD Remains in Limited Trading Range Ahead of Major Data Releases

The EUR/USD exchange rate rose 0.1% to 1.0650 on Wednesday, remaining in a limited trading range with no major data releases due in the next two weeks for the euro. The next major release will be the German CPI figures for December, which are scheduled for early January. There are also no European Central Bank speakers scheduled in the coming weeks.

GBP/USD Rises 0.2% as Risk-Sensitive AUD/USD Increases 0.5%

The GBP/USD exchange rate rose 0.2% to 1.2044 on Wednesday, just above its low for the month of 1.1993, reached on December 22nd. The risk-sensitive AUD/USD exchange rate also saw an increase of 0.5% to 0.6763.

USD/CNY Rises 0.2% Following China's Announcement to Lift Inbound Traveler Quarantine Requirement

The USD/CNY exchange rate rose 0.2% to 6.9721 on Wednesday, boosted by China's announcement on Monday that it will no longer require inbound travelers to go into quarantine starting on January 8th. However, the rising number of COVID cases is causing concerns and is expected to result in further disruption to the economy through the first quarter.