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Bank of Japan brings kiwi back to earth

NZN 29/07/2016 Jonathan Underhill

The New Zealand dollar fell against the yen after the Bank of Japan announced additional monetary stimulus measures that were more modest than some in the market were expecting, driving up its currency.

The kiwi fell to a three-week low of 73.10 yen and was at 73.33 yen at 5pm in Wellington, from 74.45 yen late Thursday, after the Bank of Japan kept its policy rate at -0.1 per cent while almost doubling its target for purchases of exchange-traded funds. The currency traded at 70.88 US cents, down from 71.11 cents. The kiwi is heading for a 1.1 per cent weekly gain.

Speculation had grown about the size of the BOJ's stimulus measures, including cutting its policy rate more deeply negative, after the government on Thursday unveiled a larger-than-expected 28 trillion yen fiscal package.

But the BOJ's statement shows a clear determination to keep rates on hold, with a 7-2 majority vote, disappointing those in the market expecting greater efforts to revive Japan's economy and drive inflation back up to a target of 2 per cent.

"The Bank of Japan has got a history of disappointing the market," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

"The market probably got a bit carried away."

Running through to the close of trading in New York on Friday, the kiwi may be underpinned by demand from fund managers making month-end adjustments to their portfolios, Kelleher said.

The trade-weighted index fell to 75.74 from 76.02 late Thursday. New Zealand's two-year swap rate fell about 2 basis points to 2 per cent, near a record low, and 10-year swaps fell 3 basis points to 2.41 per cent.

The local currency slipped to 94.21 Australian cents from 94.42 cents Thursday and fell to 4.7135 Chinese yuan from 4.7366 yuan. It dropped to 63.95 euro cents from 64.25 cents and decreased to 53.77 British pence from 53.93 pence.

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