Yen down on low interest rate expectations

The Japanese yen lost ground in Europe on Wednesday morning as rumors circulated that interest rates in Japan could stay at or near zero for the immediate future even though the Bank of Japan looks to be nearly ready to abandon its loose monetary policy. Even though recent comments from government officials indicate that they have dropped their opposition to a tighter policy, reports in the Japanese media contend that the Bank will cap the overnight rate at 0.1 percent for a lengthy period even after tightening begins.

The yen dropped ¥0.4 to ¥116.17 versus the US dollar. The Japanese currency also declined by ¥0.7 to ¥138.66 in relation to the euro, fell ¥1 to ¥204.00 against sterling, and lost ¥0.35 to the Australian dollar, to ¥86.31.

The US dollar also declined again as investors continued to react to Tuesday’s dollar-negative economic data. The greenback lost 0.15 cents to $1.1933 in relation to the euro and dropped 0.25 cents to $1.7558 against sterling. Analysts said that among the things holding the US currency back were the efforts to stop the move by the United Arab Emirates to buy several US ports, as well as US attempts to call China a currency manipulator.

A flurry of excitement sent several Asian currencies higher in Asian trade as remarks from a Chinese foreign exchange official were initially taken to mean that the government there intended to loosen a little more of its control over the renminbi. This turned out not to be the case, but the renminbi still closed at a new high of Rmb8.0369 to the dollar, up from Rmb8.0403 on Tuesday.