The yen weakened on Tuesday and languished near a one-year low against the dollar, after a small step by the Bank of Japan (BOJ) towards ending years of massive monetary stimulus failed to appease some investors who had expected a bigger move.
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.
Some analysts touted the move as a de-facto abolishment of the BOJ's controversial YCC regime, but the yen still slid roughly 0.8% past the 150 per dollar threshold to hit an intraday low of 150.26 JPY=EBS .
The euro similarly jumped about 0.7% to 159.30 yen EURJPY=EBS , while sterling gained 0.63% to 182.44 yen,
"The 1% is no longer a strict cap and so that means they will allow for JGB yields to rise above 1%. To some extent, this is as good as quietly allowing YCC to fade in the background," said Christopher Wong, a currency strategist at OCBC.
The move in the yen also reflected expectations of a tweak that had already been priced in, following a Nikkei report on Monday that said the BOJ could potentially allow 10-year JGB yields to rise above 1%.
"I think the market already fully priced in the decision today with the Nikkei article," said Norihiro Yamaguchi, senior Japan economist at Oxford Economics. "Some seem (to have) expected a total abolishment of YCC, which was not the case."
DOLLAR REIGNS Elsewhere, the greenback edged broadly higher, with the dollar index =USD last up 0.16% at 106.33.
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 0.3% gain for October, with the single currency last 0.08% lower at $1.0606.
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 0.15% to $1.2149 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 0.29% to $0.6355 and was headed for a monthly loss of more than 1%.
The Antipodean currency, which is often used as a liquid proxy for the yuan, was further pressured by data on Tuesday which showed China's manufacturing activity unexpectedly contracted in October.
The New Zealand dollar NZD=D3 lost 0.2% to stand at $0.58325 and was set for a nearly 3% decline for October, weighed down by a surprisingly low reading on domestic inflation in the third quarter which lessened the chance of another rate hike.
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