NEW YORK — The dollar fell against most major currencies on Tuesday in choppy
trading, weighed down by expectations of a possible policy shift at the Bank of Japan (BOJ) that could end
its so-called “yield curve control” and be a precursor to adopting a tighter monetary stance.
The expectations have pushed the yen higher against the dollar over the past few weeks. Since Jan. 6,
the yen has surged nearly 5% against the greenback.
Sterling, meanwhile, led gains versus the dollar, hitting a five-week high after data showed the pace of
pay growth accelerated again in Britain, closely watched by the Bank of England as it gauges how much higher
to raise interest rates.
The market’s focus remained on the BOJ. Speculation is building about a change or end to Japan’s yield
curve control (YCC) policy, given that investors have pushed 10-year bond yields above a ceiling set by the
BOJ of 0.5% and the amount of bond buying to defend it has become staggering.
Under the YCC policy, the BOJ targets some short-term interest rates at -0.1% and the 10-year government
bond yield at 0.5% above or below zero, aimed at achieving a 2% inflation target on a sustained basis.
The BOJ is expected to make a crucial policy decision on Wednesday after a two-day meeting.
“The market is waiting on tenterhooks to see if the BOJ gets on top of this,” said Amo Sahota, executive
director at FX consulting firm Klarity FX in San Francisco. “If they do, then dollar/yen is headed toward
126. But I think they’re going to hold steady here, giving the same cautionary tale and wait it out a little
In afternoon trading, the dollar slid 0.2% against the yen to 128.24 yen.
Against the Swiss franc, the dollar dropped 0.5% to 0.9220 francs.
The Australian and New Zealand dollars rose against the greenback, up 0.5% at US$0.6991 and up
0.8% at US$0.6433 respectively.
The euro fell 0.3% against the dollar to $1.0793, undermined by a Bloomberg News report saying
that while a 50 basis-point (bp) rate hike in February remains likely, the prospect of a smaller 25-bp
increase in March is gaining support.
The pound rose 0.7% against the dollar to $1.2278, after surging to a five-week peak of
$1.2299. Sterling was lifted by data showing UK wages growth increased pace in the three months to November,
while employment rose by a faster-than-expected 27,000.
FX options data showed that the market is anticipating sharp moves when the BOJ meeting ends on
Wednesday, with overnight implied volatility surging to a six-year high.
Elsewhere, the U.S. dollar index