Japanese yen falls against dollar

The yen declined against the US dollar for the second day in a row, as the Federal market Open Committee (FOMC) begins its latest meeting today to determine near-term monetary policy.

FOMC meetings are usually closely watched, with the potential to move the markets, but this latest meeting is attracting even greater attention than normal, with uncertainty about the Fed’s intentions notably high despite Fed Chairman Ben Bernanke’s attempts to offer greater transparency than has been available in the past.

Bernanke will host a press conference tomorrow afternoon in Washington D.C. after the meeting has concluded. Comments from Bernanke in the Q&A session that followed his testimony in front of Congress at the end of May revealed that a reduction in the Fed’s $85 billion of assets purchased each month could be a possibility within the next few meetings if incoming data showed that economic improvements were sustainable.

Since then, speculation has mounted about the future of monetary stimulus from both the Fed and the Bank of Japan, leading to increased volatility. CPI data today showed inflation remains modest, with a month-on-month change of just 0.1%, and an annual change of 1.4%, well below the Fed’s 2.5% tolerance limit, which would initiate changes in monetary policy. Cooling inflation should give the Fed more leeway to maintain its current stimulus.

USD/JPY climbed 0.7% to 95.16 yen per dollar by mid-afternoon in New York.

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