Yen volatile after BOJ raises rates; Aussie set for monthly loss
Updates at 0400 GMT
By Rae Wee
SINGAPORE, July 31 (Reuters) -The yen was choppy on Wednesday in the wake of the closely watched Bank of Japan (BOJ) decision, where it raised interest rates and unveiled a plan to taper its huge bond-buying programme.
The yen rallied as much as 0.8% to a more than three-month high of 151.58 per dollar JPY=EBS immediately after the BOJ announcement, though reversed those gains shortly after to last stand over 0.3% lower at 153.25.
The central bank said in a statement that it raised its short-term interest rate target to 0.25% from 0-0.1% previously, and that it would taper its bond buying to three trillion yen ($19.53 billion) per month as of the first quarter of 2026.
The yen looked set to end July with a 5% gain, helped by Tokyo's bouts of intervention and the unwinding of short-yen carry trades prior to the BOJ decision.
Down Under, the Australian dollar slid to its weakest since May after core inflation surprised on the downside and greatly lessened the risk of another rate hike.
Wednesday was shaping up to be a busy day as investors will also get inflation figures from France and the wider euro zone bloc later in the day, alongside a policy decision from the U.S. Federal Reserve, which takes centre stage.
Spreading geopolitical violence also kept markets on edge.
The Aussie AUD=D3 was last 0.54% lower at $0.6503, having fallen more than 0.8% to a three-month low of $0.64825 in the wake of the consumer price index (CPI) data. That left the currency heading for a monthly loss of more than 2%.
Markets have since abandoned bets of a further rate hike from the RBA and are wagering on an easing as early as November. The RBA holds its policy meeting next week. 0#RBAWATCH
"If the RBA needed a smoking gun to tip the balance towards hikes next week, then this quarterly CPI print, while it certainly won't please the RBA, isn't sufficient to convince them to hike by 25bp next week," said Chris Weston, head of research at Pepperstone.
Elsewhere in Asia, China's July manufacturing activity contracted for a third month, an official factory survey showed on Wednesday, keeping alive expectations Beijing will need to do more to prop up its shaky economic recovery.
The yuan CNY=CFXS, however, was last 0.2% higher at 7.2347 per dollar.
BRACING FOR THE FED
The euro EUR=EBS rose 0.11% to $1.0827 and was headed for a 1% gain in July, helped by an easing dollar.
Data on Tuesday showed the euro zone's economy grew slightly more than expected in the three months to June, but the outlook for the remainder of the year was not quite so rosy.
Sterling GBP=D3 advanced 0.12% to $1.2852 and was eyeing a monthly gain of 1.6%. The New Zealand dollar NZD=D3 edged 0.12% higher to $0.5910, though was on track for a 3% drop for the month.
Traders were also keenly awaiting the Fed's rate decision, likely the next main catalyst for broad currency moves after the BOJ. Markets expectations are for the U.S. central bank to lay the groundwork for a September rate cut.
Markets expect a September start to the Fed's easing cycle, with about 68 basis points worth of cuts priced in for the rest of the year.
The dollar index =USD dipped 0.07% to 104.37 and was set for a monthly loss of 1.4%.
"We expect (the Fed) to open the door to a first interest rate cut in September. In our view, such a move today could send the wrong signal to markets and could spook investors," said Barclays Private Bank chief market strategist Julien Lafargue.
"On the other hand, with markets already pricing in slightly more than 25bp worth of cuts in September, the Fed may find it hard to push back against these expectations."
($1 = 153.5900 yen)
World FX rates https://tmsnrt.rs/2RBWI5E
BOJ holdings of JGBs by tenor https://tmsnrt.rs/45vXZ50
Reporting by Rae Wee; Editing by Christopher Cushing and Jacqueline Wong
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