TOKYO: The yen retreated in Asian trade Wednesday following a report that the Bank of Japan is considering cutting borrowing costs further into negative territory when it meets next week.
Japan’s respected Nikkei business daily said policymakers were preparing to make negative rates the centrepiece of their easing programme as they struggle to get to grips with weak growth and non-existent inflation.
Without citing sources, the daily said the BoJ “will likely forgo purchasing foreign government bonds” at the upcoming meeting.
The report comes as investors try to get a handle on the Federal Reserve’s plans for its own borrowing costs, with two top officials on Friday calling for a September hike but another this week urging restraint.
Both central banks will hold policy meetings next week.
The dollar rose to 103.27 yen in Tokyo from 102.59 yen in New York late Tuesday, while the euro bought 115.99 yen against 115.07 yen. The single currency was also changing hands at $1.1225 compared with $1.1217 in US trade.
“We are experiencing deja vu as the market clambers for top side exposure” in dollar-yen on worries “the Bank of Japan might surprise this time around”, OANDA senior trader Stephen Innes wrote in a note.
The central bank launched its negative rate policy earlier this year but it has been unpopular among Japanese banks as it effectively charges them to keep excess reserves in the BoJ’s vaults.
“Investors are expecting that the BoJ will adopt a more flexible stance on its bond-buying measures and couple that with an additional cut to the deposit rates,” Katsutoshi Inadome, a senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities, told Bloomberg News.
