Dollar extends yen gains in Asia as Fed, BoJ diverge

The dollar built on gains against the yen Thursday after the Federal Reserve unveiled plans to wind down its crisis-era stimulus and hinted at another interest rate hike before the end of the year.

Fed boss Janet Yellen said the world’s biggest economy was “performing well” while it emerged after a closely watched meeting that most members of the policy board wanted to lift borrowing costs by December.

The central bank also announced it would next month begin cutting back on its holdings of bonds and other assets built up as part of a scheme to keep rates low and steer the economy through the global financial crisis a decade ago.

Yellen said policymakers would react accordingly to any negative impacts on the economy, adding that persistently low inflation would likely come to an end.

She also said if prices rose too quickly the bank would be able to lift rates quicker.

“It doesn’t get any more brazenly hawkish from Dr Yellen, who along with the majority of her colleagues is clearly in the December rate hike camp and the markets are reacting to this news,” said Stephen Innes, head of Asia-Pacific trading at OANDA.

The dollar surged in New York to 112.15 yen from 111.50 yen earlier in Asia. On Thursday the US unit was given an extra lift after the Bank of Japan decided against altering its ultra-loose monetary policy, which analysts said could see it break above 113 yen soon.

The euro sank from around $1.20 to below $1.19 while the pound dropped below $1.35 in New York but the pair recovered some ground in Asia Thursday.

The greenback continued to advance against other higher-yielding currencies with the Australian and Canadian dollars, South Korean won and Indonesia’s rupiah all well down.

– Equities struggle –
The dollar’s gains come after a run of losses in recent months as tepid inflation and a lack of movement on Donald Trump’s economic agenda in Congress had seen investors bet on no more rate hikes this year.

The jump in the dollar against the yen boosted Japanese exporters, which helped the Nikkei index close 0.1 percent higher.

Toshiba retreated as its US partner Western Digital vowed to block an $18-billion deal that will see the Japanese firm sell its key chip business to a consortium led by US investor Bain Capital and including Apple and Dell.

The deal, announced by Toshiba on Wednesday, is seen as crucial to the Japanese firm’s survival.

But most other regional markets retreated. Hong Kong, where monetary policy is linked to that of the United States, eased 0.1 percent while Sydney shed 0.9 percent on falling iron ore prices.

Shanghai was off 0.2 percent, Singapore eased 0.1 percent and Seoul retreated 0.2 percent. Wellington slipped 0.3 percent but Taipei was up 0.6 percent and Manila put on 1.1 percent.

In early European trade, London was barely changed, while Paris rose 0.4 percent and Frankfurt put on 0.3 percent.

On oil markets, both main contracts dipped following an almost two percent rally Wednesday on data showing US gasoline stockpiles had fallen to a 22-month low, while speculation circulates that Nigeria and Libya will join the OPEC-Russia production cuts.

– Key figures around 0820 GMT –
Tokyo – Nikkei 225: UP 0.1 percent at 20,347.48 (close)

Hong Kong – Hang Seng: DOWN 0.1 percent at 28,110.33 (close)

Shanghai – Composite: DOWN 0.2 percent at 3,357.85 (close)

London – FTSE 100: FLAT at 7,273.46

Euro/dollar: DOWN at $1.1897 from $1.1898 at 2100 GMT

Dollar/yen: UP at 112.63 yen from 112.15 yen

Pound/dollar: UP at $1.3510 from $1.3495

Oil – West Texas Intermediate: DOWN eight cents at $50.61 per barrel (new contract)

Oil – Brent North Sea: DOWN 14 cents at $56.15

New York – DOW: UP 0.2 percent at 22,412.59 (close)