LONDON (AFX) - The yen weakened against major currencies in early trade on the Bank of Japan's return to a zero interest rate policy, dealers said.
"I would think that the zero interest rate policy in bigger picture terms would weaken the yen a little bit more, but you may well get a buy-the-rumour-sell-the-fact effect," 4cast Chris Furness said. Furness said the currency was softer earlier on the perception that Japanese policy is to have a weaker yen.
Dealers said attention will also focus on today's meeting between Japanese prime minister Yoshiro Mori and U.S. president George W Bush. Otherwise, investors are looking ahead to tomorrow's meeting of the U.S. Federal Open Market Committee.
"We think the FOMC will cut rates by 75 basis points, which in the big picture should weaken the dollar, but in the near term it'll probably strengthen it because it'd be good for equity markets and would suggest that the Fed is actually ahead of the curve," Furness said.
GNI said in a research note that last week's stockmarket volatility has led to speculation that the FOMC will opt for a 75 bp cut rather than the 50 bp reduction earlier expected.
In the UK, dealers noted a heavy flow of data tomorrow, including inflation figures which are expected to strengthen the Bank of England monetary policy committee's arm to cut the repo rate next month in the event of further deterioration in the U.S. economy.
Wednesday's release of the minutes of the MPC's March meeting could provide further clues as to the timing of any further easing in monetary policy, dealers said.