Dollar appreciates at the end of December 2022. Although the US dollar’s position in European trading was almost unchanged, it gained ground against the Japanese yen after the Bank of Japan’s most recent minutes showed that the supportive monetary policy is likely to be sustained.
How did the dollar gain an edge over the yen?
In particular, The Dollar Index, which measures how the dollar trades against a basket of six different currencies, was trading at 103.870, up from its lowest point since mid-June of 103.44.
USD/JPY increased by 0.3% to 133.86, recovering from a low of 130.58 reached just over a week before the BOJ announced a narrowing of the yield spread on 10-year Japanese government bonds. This has shown the possibility of the central bank of Japan tightening monetary policy.
According to officials in the minutes of the December meeting, the BOJ’s shift in position is intended to improve the functioning of the Japanese government bond market rather than alter the course of policy.
As evidence that the extremely supportive policy is still in place, this created a significant impact on the Japanese yen, particularly when compared to the dollar. However, losses were limited by the holiday season and a lack of confidence in the BOJ’s ability to maintain its current course for an extended period of time, especially given that consumer inflation in Japan reached a four-decade high. The proportion was 3.7% in November.
The impacts of the fluctuational relationship between dollar and yen on forex market
At the end of December, a number of US economic statistics are scheduled for release, including the Red Book, the Richmond Manufacturing Index, and pending home sales.
ING analysts wrote in a note that “We don’t think the data will be able to shake the market in a less volatile environment. News from China and about the energy crisis are more likely to spur any significant moves if any”.
Apart from the euro’s CPI, there are not any significant euro data releases anticipated for the next two weeks; therefore, the EUR/USD increased by 0.1% to 1.0650 and remained in a tight trading range. Germany from December 2022 to early January 2023 with no speeches from the European Central Bank.
The risk-sensitive AUD/USD increased 0.5% to 0.6763, while the GBP/USD increased 0.2% to 1.2044, slightly above the 1.1993 low reached on December 22. However, the escalating COVID cases in China give rise to further economic disruption during the first quarter, which could inflict undermining trust.
In general, the US dollar’s position may improve. Meanwhile, although the yen’s international role defies precise measurement, it may not have internationalized in the manner desired or anticipated by the BOJ. However, the yen can play an important role in leveraged international finance.
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