By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — The U.S. dollar weakened against the Japanese yen and other currencies on Tuesday as the Bank of Japan voted for a 2% inflation target and shifted to open-ended asset purchases in a bid to end stagnation.
Against the Japanese unit, the U.S. dollar USDJPY -0.96% dropped to 89.03 yen from ¥89.71 in late Monday trading. The euro EURJPY -0.72% dropped to ¥118 from ¥119.56 late Monday.
Initially reacting to the announcements from the Bank of Japan, the dollar popped a yen higher to around ¥90.18 yen before dropping back.
In a major policy shift, the central bank laid out that 2% target, along with an asset-purchase plan mirroring that of the U.S. Federal Reserve. But that plan has been delayed out to 2014, until the current program ends. Read: Bank of Japan adopts firm target of 2% inflation
Some had been expecting these decisions since the new administration of Prime Minister Shinzo Abe has been leaning on the central bank to help spur growth and end decades of falling prices.
“The move towards a 2% inflation target was fully in line with market expectations, whereas the open-ended asset purchases are a surprise move. It is a bolder move than most investors had been expecting ahead of the announcement,” said analysts at Danske Bank.
However, the analysts said none of this means the dollar/yen is in for a trend reversal. “If the yen starts to appreciate, we are certain that we will see new measures from [the] BOJ and the government. Hence, we still forecast that both EUR/JPY and USD/JPY will move higher in 2013 but the pace will most likely slow now.”
Added analysts from FxPro: “The lack of real short-covering may well suggest that there is still a deep well of additional selling to be done. Certainly Japanese politicians would welcome it, as would the BOJ, because it will help to achieve their inflation target more quickly,” they said in a note.
The ICE dollar index DXY -0.34% , which measures the greenback against a basket of six major global currencies, dropped to 79.77 from 80.046 late on Monday. The WSJ Dollar Index XX:BUXX -0.41% , which uses a slightly wider basket, fell 0.3% to 70.73.
Within other currency crosses, the euro EURUSD +0.24% was little changed, trading around $1.3337 versus $1.3312 in late trading on Monday.
Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @bkollmeyer.
