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Yen advances after BOJ takes steps to make yield curve control flexible By Reuters

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© Reuters. FILE PHOTO-A Japan Yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

By Ankur Banerjee

SINGAPORE (Reuters) – The yen gained in volatile trading on Friday after the Bank of Japan maintained ultra-low interest rates but took steps to make its yield curve control policy more flexible.

Chopping and changing direction as traders digested the BOJ decision, the yen strengthened to as much as 138.50 per dollar before weakening to 141.20. The Japanese currency was last at 139.14, up 0.25 against the dollar.

The BOJ’s two-day policy meeting ended on Friday with a decision to keep unchanged its short-term interest rate target at -0.1% and that for the 10-year government bond yield around 0%.

The BOJ also said it would offer to buy 10-year Japanese government bonds (JGB) at 1.0% in fixed-rate operations, instead of the previous rate of 0.5%.

“Effectively, markets will test the 1% cap and that can be bullish for the yen, while global liquidity conditions could be impacted as well as yen carry trades start to reverse,” Charu Chanana, market strategist at Saxo Markets, said.  

Earlier this week, the U.S. Federal Reserve and the European Central Bank hiked policy rates by 25 basis point, as expected.

However, the ECB raised the possibility of a pause in September as inflation pressures show tentative signs of easing and recession worries mount.

“There is the possibility of a hike (next time). There is the possibility of a pause. It’s a decisive maybe,” ECB President Christine Lagarde said on Thursday in comments that sent the euro 1% lower on Thursday.

During Asian trade on Friday, the single currency eased 0.05% to $1.0967.

Meeting on Wednesday, the Fed left the door open to more rate hikes, though Fed Chair Jerome Powell gave few hints about the September meeting.

“Both central banks have retained a hawkish bias, but the Fed looks more likely to hike again while the data is telling us the ECB is probably done,” said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:).

Data overnight underscored the challenge faced by the Fed, with the U.S. economy growing faster than expected in the second quarter as labour market resilience underpinned consumer spending, while businesses boosted investment in equipment.

A separate report from the Labor Department showed initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 221,000 for the week ended July 22, the lowest level since February. Economists had forecast 235,000 claims.

Against a basket of currencies, the dollar was up 0.05% at 101.73, having risen 0.66% overnight.

The Australian dollar 0.84% to $0.665, while the lost 0.50% to $0.615.

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