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Yen on defensive before BOJ; NZ dollar sinks

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TOKYO — The yen retreated against the dollar on Tuesday ahead of a Bank of Japan policy announcement later in the day, with the central bank widely seen leaving ultra-easy stimulus settings unchanged.

The greenback also edged toward a one-week high versus a basket of major peers, supported by higher U.S. Treasury yields as investors continued to digest the Federal Reserve’s message of higher interest rates for longer.

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New Zealand’s dollar dropped after a big decline in a survey of local business confidence. The Aussie, though, was little changed after shrugging off minutes from the Reserve Bank of Australia’s last policy meeting.

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The “hawkish Fed policy update remains fresh in the minds of investors,” buoying U.S. yields and the dollar, National Australia Bank strategist Rodrigo Catril wrote in a client note.

At the same time, “consolidation is the theme within FX” amid thinning market liquidity heading into the holiday season, he added.

The dollar gained 0.37% to 137.415 yen, with the pair particularly sensitive to changes in U.S. long-term yields, moving toward the top end of the trading range this month of 133.62-138.18.

Ten-year Treasury yields held at a one-week high of 3.601% in Tokyo trading.

While the BOJ is set to maintain ultra-low rates and reassure markets it’s in no rush to withdraw stimulus, Governor Haruhiko Kuroda’s media conference will be carefully watched for hints of any looming policy tweaks heading toward the end of his term in spring.

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The yen spiked briefly on Monday after media reports the government will next year consider revising a joint statement with the BOJ that commits the bank to meeting its 2% inflation target as soon as possible.

The dollar index – which measures the currency against the yen, euro and four other major peers – edged 0.13% higher to 104.75, approaching Monday’s high of 104.93, which was its strongest level since Dec. 13.

The euro edged 0.07% lower to $1.0601, giving up a little of Monday’s 0.23% gain following an upbeat reading of German business morale. Earlier that day, if had languished at the lowest since Dec. 13 at $1.05755.

Sterling was flat at $1.21455, holding close to the previous session’s nearly two-week low of $1.2120.

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The Aussie was 0.03% weaker at $0.66965, consolidating around that level since Thursday following its retreat from last week’s three-month high of $0.6730.

Minutes of the RBA’s Dec. 6 meeting, when policymakers opted for a quarter point rate increase, showed they also considered a half point hike and a pause.

Those minutes reinforced the “uncertain outlook” for policy, providing an additional weight on the Australian dollar, said Sean Callow, a strategist at Westpac.

“Unease over China’s haphazard COVID policy changes also seems to be keeping a lid on AUD/USD,” he added. “But with trading conditions thinning into year-end, AUD/USD may be able to stabilize and avoid a break of 0.6600.”

The New Zealand dollar sank 0.41% to $0.63380.

(Reporting by Kevin Buckland; Editing by Sam Holmes)



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