Tokyo: The US dollar bounced back from 13-year lows against the yen on Friday as the market waited for a Bank of Japan’s (BoJ) decision on whether to lower interest rates.
The yen retreated from earlier highs as investors debated whether the BoJ will cut rates from the already low 0.3% in an attempt to fight the recession, dealers said.
By late morning, the US dollar was back at 89.48yen, the same level as in New York late on Thursday. The euro fell to US $1.4228 in Tokyo trade from 1.4268 in New York and to 127.30yen from 127.70.
Japanese officials have flirted with currency intervention to temper the yen’s appreciation, which dents corporate profitability, and have made little secret they would welcome a rate cut by the Bank of Japan.
Shoichi Nakagawa, Japanese finance minister, has voiced hope that the BoJ, which is independent, does ‘what is necessary for the economy.’
But those remarks were offset by Japanese economy minister Kaoru Yosano, who said on Friday that foreign exchange rates were based on economic fundamentals and that a rate cut would have limited impact on market sentiment.
Dealers said lowering rates would be largely symbolic, showing that Japan was taking part in a wave of global action including the drastic cut this week by the US Federal Reserve that sent the US dollar plunging.
But the move could also be seen as bowing to politicians, they added.
The BoJ “doesn’t want to obey politicians,” Royal Bank of Scotland chief forex strategist Masafumi Yamamoto told Dow Jones Newswires, predicting that the bank will leave its policy rate unchanged.
Other traders however, believe the yen could see greater effects if the BoJ takes no action than if it did.
Michihiro Shirakawa, an economist at Credit Suisse, predicted that the bank would cut rates a notch to 0.20%, just below the top range set by the Federal Reserve this week.
Investors seem to agree, however, that the BoJ will likely announce measures to shore up credit markets such as buying commercial paper, the short-term debt that companies issue to run their daily operations.