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Kiwi gains vs yen as BOJ reworks strategy

NZ NewswireNZ Newswire 21/09/2016 Jonathan Underhill

© Bloomberg The New Zealand dollar fell below 73 US cents and gained against the yen after the Bank of Japan amended its monetary policy, prompting traders to sell the Japanese currency in favour of the greenback.

The kiwi fell to 72.85 US cents as at 5pm in Wellington from 73.23 cents late yesterday. The local currency rose to 74.80 yen from 74.55 yen.

The BOJ surprised financial markets by scrapping its base money target and focus on setting long-term interest rates, buying long-term bonds to keep the 10-year yield around 0 per cent.

At the same time, it kept the -0.1 per cent interest rate it applies to reserves that financial institutions leave with the BOJ and maintained its target of buying long-term government bonds at a pace that would increase its holdings by 80 trillion yen a year.

"This appears to be 'operation reverse twist'," said Graham Parlane, private client manager at OMF.

Parlane said the changes were "a difficult one to interpret" but it was "an attempt to foster inflation and growth in Japan."

The market "is giving them the benefit of the doubt at the moment."

The Bank of Japan's statement drove traders back to the greenback ahead of the results of the Fed's latest policy meeting on Thursday morning New Zealand time. Currencies including the kiwi also fell against the US dollar as a result.

The trade-weighted index dropped to 77.79 from 78.09. In the local market, traders are also awaiting the Reserve Bank's interest rate review at on Thursday, which is expected to keep the official cash rate at 2 per cent while signalling a quarter point cut before the end of the year.

Also out on Thursday is Fonterra's annual results, although the revised forecast announced today was a key part of the news.

The kiwi fell to 96.59 Australian cents from 96.99 cents and slipped to 4.8606 yuan from 4.8834 yuan. It was little changed at 65.478 euro cents from 65.32 cents and little changed at 56.16 British pence from 56.15 pence.

New Zealand's two-year swap rate fell 1 basis point to 2.09 per cent, and 10-year swaps increased 1 basis point to 2.63 per cent.

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