North American FX Open - YEN sold as BOJ signals no rush to raise rates

The YEN slumped overnight after the BOJ left rates on hold at 0.25% and signaled it sees no need to hurry with interest rate hikes, with USD/YEN rallying through Thursday's 143.95 peak to highs of 144.27 so far in response.

The BOJ said inflation expectations 'have risen moderately' and that Japan’s economy is likely to keep growing 'at a pace above its potential growth rate', as underlying CPI inflation is 'expected to increase gradually', but added that upside risks to inflation were easing and that gives the Bank room to mull policy.

Markets had been positioned for a hawkish hold.

In the post-decision conference, UEDA said that the BOJ needs some time to see how uncertainties will impact the outlook, and that current uncertainty won't lead to a quick decision on a hike. He added that further rate hikes are data dependent. The BOJ won't use monetary policy to control FX, and they need to be careful on hikes as we approach the neutral rate, he added.

Japan's inflation data had little impact. National CPI increased in August to 3.0% y/y (as expected) vs 2.8% the month previous. The core reads edged up too.

Meanwhile, the POUND extended its post-BOE gains and outperformed its G-10 peers after UK retail sales topped estimates.

UK sales rose 1.0% m/m vs a 0.4% consensus and from a revised firmer 0.7% (0.5%) the month previous.

Specs also cited comments from Bank of England policymaker MANN, who said that she would prefer to keep rates higher for longer and then cut more aggressively when it is clear inflation risks are receding.

Mann added that she believes the neutral interest rate is higher than the BOE’s models imply and that, as a result, policy is less restrictive today with interest rates at 5% than the MPC thinks. Mann, the most hawkish member of the nine-strong MPC, said: "A risk management assessment implies that it is better, under inflation uncertainty, to remain restrictive for longer, until right tail risks to the inflation process dissipate, and then to cut more aggressively."

This session, US data/events are kept to a minimum with just the Fed's Harker scheduled to speak later.

Focus thus rests with Canada retail sales for July, which are seen rising 0.6% m/m in July vs -0.3% prior. Sales ex-auto are seen up 0.3%, matching the prior read.

EZ Consumer Confidence for September is also out, forecast at -13.2 vs -13.5 prior.

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