Yen gains after Bank of Japan holds back on more stimulus

The yen strengthened on Tuesday after the Bank of Japan refrained from expanding its stimulus while the Australian dollar briefly hit a two-week high after the ruling party ousted unpopular prime minister Tony Abbott in a leadership challenge.

In a knee-jerk reaction to the Bank of Japan’s decision to maintain the current pace of monetary easing, the yen firmed to 119.95 yen to the dollar edging near Monday’s high of 119.85.

While such an outcome was widely expected, a very small number of market players had hoped for a surprise easing given weak economic data over recent weeks.

The immediate resistance for the yen stood near 119.65, a 61.8 percent retracement of its fall from high of 118.60 on Sept 4 to low of 121.38 on Sept 10, a clear break of which could open the way for a full return to the Sept 4 high.

While the safe-haven yen could gain further if the world’s equity markets falter on worries about a U.S. rate hike or a slowdown in China, it could be hampered if the BOJ drops more hints of further monetary easing.

The BOJ indeed downgraded its economic assessment, and traders now focus on what Governor Haruhiko Kuroda will say on the worsening price outlook as the country’s core inflation flirts with zero. Kuroda’s news conference begins at 0630 GMT.

The Australian dollar hit a two-week high against the dollar and the yen after Australia’s ruling Liberal Party voted out unpopular Prime Minister Tony Abbott.

Malcolm Turnbull, a multi-millionaire former tech entrepreneur, was sworn in as prime minister on Tuesday.

Hopes that Treasurer Joe Hockey will be replaced also underpinned the Aussie.

The Aussie’s rally stopped at $0.7166 and 81.32 yen. The currency last stood at $0.7133, as it gave up gains also after the minutes of the Reserve Bank of Australia’s September policy contained few surprises and triggered profit-taking.

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