The yen weakened on Tuesday after the Bank of Japan (BOJ) maintained ultra-low rates but made a small tweak to its bond yield control policy, disappointing speculators who had expected more from the central bank as price pressures persist.
At the conclusion of its two-day policy meeting,
the BOJ
said that it would keep the 10-year government bond yield around 0% set under its yield curve control (YCC), but re-defined 1.0% as a loose "upper bound" rather than a rigid cap.
It also removed a pledge to defend the level with offers to buy unlimited amount of bonds.
Nonetheless, the yen slid nearly 0.7% against the dollar JPY=EBS , past the 150 per dollar threshold to hit an intraday low of 150.12. It later pared some of those losses to stand at 149.95.
The euro similarly jumped about 0.5% against the yen following the decision EURJPY=EBS . The single currency last bought 158.87 yen.
"It looks like the BOJ is slowly progressing towards YCC removal, so this is part of a series of moves for more flexibility as global yields stay elevated," said Jeff Ng, head of Asia macro strategy at SMBC.
"Maybe markets were expecting more, or it could also be a (matter of) buy the rumour, sell the fact."
A Nikkei report had said on Monday that the BOJ could potentially allow 10-year Japanese government bond yields to rise above 1%, which had propped up the yen prior to the central bank's policy announcement.
In other currencies, the greenback edged broadly higher, with the dollar index =USD last up 0.22% at 106.39.
While the index looked set to end the month largely unchanged, analysts say the dollar remains underpinned by risks of another rate hike from the Federal Reserve, noting a still-resilient U.S. economy.
"The Fed can still have the luxury of sounding hawkish in its outlook, by stressing the 'high for long' narrative," said Thierry Wizman, Macquarie's global FX and interest rates strategist, of the Fed's rate decision due on Wednesday.
"As long as that's still the case, and as long as the U.S. economy displays more robustness in its official data than the rest of the world does, the euro, sterling, yen and Australian dollar will have a tough go at appreciating vs the U.S. dollar."
The euro EUR=EBS looked set to reverse two straight months of losses with a slight 0.2% gain for October, with the single currency last 0.18% lower at $1.0595.
Data on Monday showed inflation in Germany eased noticeably in October, while a separate report showed Europe's largest economy shrank slightly in the third quarter.
Spain's 12-month inflation in October was unchanged from the previous month at 3.5%, preliminary data also out on Monday showed.
The figures come ahead of euro zone inflation data due later on Tuesday.
Sterling GBP=D3 fell 0.18% to $1.2146 and was poised to lose nearly 0.5% for the month, ahead of an interest rate decision by the Bank of England later in the week where expectations are for the central bank to stand pat.
Elsewhere, the Australian dollar AUD=D3 slid 0.35% to $0.6351 and was headed for a monthly loss of more than 1%.
The New Zealand dollar NZD=D3 lost 0.22% to stand at $0.5831 and was set for a nearly 3% decline for October, pressured by fragile risk sentiment globally and as a surprisingly low reading on domestic inflation in the third quarter lessened the chance of another rate hike.
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