Japanese yen set for first monthly gain since March 

The yen experienced a decline on Monday morning, extending losses from a volatile session at the end of the previous week after the Bank of Japan (BOJ) loosened its grip on interest rates.

However, despite the recent dip, the yen was set to reverse three consecutive months of declines and was on track to end July with a roughly 2 percent gain, marking its first monthly rise since March.

China’s manufacturing activity also faced challenges, falling for a fourth consecutive month in July, although at a slower pace, as indicated by an official factory survey on Monday.

Read also:BOJ strengthens yield control flexibility, cools down on rate cap measures

The BOJ’s move to maintain ultra-low rates while making its bond yield curve control (YCC) policy more flexible and relaxing its defense of a long-term rate cap sent shockwaves through the market on Friday. The yen initially went into a tailspin, but the dollar eventually gained 1.2 percent against the Japanese currency after hitting a session-low of 138.05 yen.

Chris Weston, head of research at Pepperstone,  who spoke to Reuters, lauded the BOJ’s approach, seeing it as a brilliant move to manage market volatility while providing flexibility for future policy adjustments.

Weston said, “The BOJ threw a curve ball into the market … with its cosmetic change to YCC – in essence, it was a brilliant move by the central bank, and they’ve managed to bridge the volatility that would come with a straight change to a -/+ 1% range in the YCC band.”

Reuters added that the offshore yuan, bolstered by China’s official purchasing managers’ index (PMI) data that suggested imminent stimulus measures, gained more than 0.2 percent against the dollar, reaching 7.1365.

The Australian dollar, often used as a liquid proxy for the yuan, rose 0.2 percent to $0.6661, and the kiwi strengthened by 0.25 percent to $0.6168.

These developments have significant implications for global money flows and capital market funding, especially given the rising Japanese yields and the potential peaking of global rates.