Investing.com - The yen soared on Friday as the Bank of Japan declined to pull the trigger on aggressive easy policy and instead moved incrementally on exchange traded funds while warning on economic risks.
USD/JPY traded at 103.44, down 1.74%, while AUD/USD traded at 0.7540, up 0.49%. GBP/USD traded at 1.3188, up 0.18%.
The BoJ increased its buying of exchange traded funds to ¥6 trillion from ¥3.3 trillion as part of a move to ease policy further and spur the economy as downside risks to the economy remain, but held other policy levers steady.
Earlier in Japan, household spending fell 1.1% in June month-on-month, compared to an expected 0.4% gain with year-on-year showing a 2.2% drop. National CPI fell 0.4% in June year-on-year, matching expectations, while the unemployment rate dipped to 3.1% from 3.2%.
Also in Japan, industrial production rose 1.9%, much better than the 0.7% gain seen for June month-on-month and retail sales fell 1.4%, a tad slower than the 1.5% declined expected and the fourth straight monthly drop.
Australia said that PPI data for the second quarter came in at a gain of 0.1%, below the 0.2% gain seen quarter-on-quarter. Also in Australia, private sector credit rose 0.2% in June month-on-month, below the 0.5% gain seen, a worrying sign
given the fall is mainly due to a decline in business credit.
The yen initially soared against the dollar in Thursday's session, amid signals that the Bank of Japan could fail to meet market expectations by approving only moderate easing measures at the highly-anticipated meeting on Friday.
While Prime MInister Shinzo Abe unveiled a broad ¥28 trillion stimulus plan on Wednesday, Reuters reported that the Japanese government may only provide as much as ¥7 trillion in direct fiscal stimulus. If Abe is unable to deliver on promises of jump starting the economy with a broad stimulus initiative, the Japanese Central Bank could feel added pressure to lower interest rates deeper into negative territory.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell 0.36% to 96.34.
Overnight the dollar pared losses as investors received a full day to digest the Federal Reserve's relatively neutral monetary policy statement.
More broadly, the greenback is still up by 2.43% versus its Japanese counterpart since July 12 when former Fed chair Ben Bernanke reportedly outlined the ramifications of a helicopter monetary policy on the Japanese economy at a Tokyo meeting with Abe.
Investors on global foreign exchange markets continued to react to Wednesday's interest rate decision from the U.S. central bank, after the Federal Open Market Committee (FOMC) left its benchmark Federal Funds Rate unchanged at a level between 0.25 and 0.50% at the conclusion of its July monetary policy meeting.
Despite noting that near term risks to the economic outlook have diminished over the last month, the FOMC said it still expects that economic conditions may only warrant gradual increases in short-term interest rates in the coming months.
For the most part, markets interpreted the statement as a dovish indication that the FOMC could delay the timing of its next rate hike beyond their next meeting in September. Following the release, the CME Group's (NASDAQ:NASDAQ:CME) Fed Watch tool lowered the probability that the FOMC could raise interest rates in September to 18%, down from 20.3% earlier in the session.
Any rate hikes by the FOMC this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.