Yen Rises After BoJ Keeps Key Rate Unchanged

The Japanese yen strengthened against other major currencies in the Asian session on Thursday, after the Bank of Japan left its key interest rate unchanged as widely expected on Thursday and retained a cautious approach as political instability and looming U.S. presidential election added concerns about economic outlook.

In a unanimous vote, the Policy Board decided to maintain the uncollateralized overnight call rate to remain at around 0.25 percent. This was the highest since late 2008.

The BoJ had ended its negative interest rate policy in March and last lifted the benchmark rate in July to the current level. So far, the bank has tightened the policy twice this year.

The bank said it needs to pay close attention to overseas economies, especially the U.S., and developments in global financial markets.

While U.S. election due next week added uncertainty surrounding overseas economies, the ruling Liberal Democratic Party's election loss added domestic uncertainty.

Inflation forecast for 2024 was maintained at 2.5 percent and that for 2026 at 1.9 percent.

Investors are now awaiting the post-meeting press conference, where comments from BoJ Governor Kazuo Ueda are anticipated.

Meanwhile, traders are cautious and remain on the sidelines ahead of key U.S. economic data due this week and next week's U.S. presidential election. They also continue to assess the ongoing geopolitical tensions in the Middle East.

Traders looked ahead to a slew of U.S. economic data, including personal income and spending, which includes the U.S. Fed's preferred inflation readings, as well as tech megacap earnings for directional cues.

In economic news, data from the Ministry of Economy, Trade and Industry or METI showed that the value of retail sales in Japan was up 0.5 percent on year in September, coming in at 13.489 trillion yen. That missed forecasts for an increase of 2.1 percent and was down from 3.1 percent in the previous month. On a monthly basis, sales slipped 2.3 percent after rising 1.0 percent in August. For the third quarter of 2024, sales rose 1.1 percent on quarter and 2.1 percent on year to 41.610 trillion yen.

The METI also said industrial production in Japan was up a seasonally adjusted 1.4 percent on month in September. That beat forecasts for an increase of 0.9 percent following the 3.3 percent contraction in August. On a yearly basis, industrial production was down 2.8 percent. Upon the release of the data, the METI maintained its assessment of industrial production, saying that it continues to fluctuate indecisively.

Data from the Ministry of Land, Infrastructure, Transport, and Tourism showed that Japan's housing starts decreased for the fifth straight month in September, though at a slower-than-expected pace. Housing starts dropped 0.6 percent year-on-year in September, much slower than the 5.1 percent fall in the previous month. Economists had expected a decrease of 4.1 percent.

In the Asian trading today, the yen rose to a 2-day high of 165.07 against the euro, a 6-day high of 152.06 against the U.S. dollar and a 3-day high of 175.86 against the Swiss franc, from an early 3-month low of 166.09, a 2-day low of 153.59 and nearly a 3-1/2-month low of 177.29, respectively. If the yen extends its uptrend, it is likely to find resistance around 158.00 against the euro, 148.00 against the greenback and 170.00 against the franc.

The yen advanced to a 6-day high of 197.22 against the pound, from an early low of 198.92. On the upside, 195.00 is seen as the next resistance level for the yen.

Against Australia, the New Zealand and the Canadian dollars, the yen climbed to nearly a 2-week high of 99.97, a 6-day high of 90.88 and an 8-day high of 109.30 from early lows of 100.92, 91.82 and 110.39, respectively. The next possible upside target for the yen is seen around 98.00 against the aussie, 89.00 against the kiwi and 107.00 against the loonie.

Looking ahead, Eurozone flash inflation for October and unemployment data for September are due to be released in the European session.

In the New York session, Canada GDP data for August, U.S. weekly jobless claims data, U.S. PCE price index for September, U.S. personal income and spending for September and U.S. Chicago PMI for October are slated for release.

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