The Japanese Yen (JPY) remained under significant selling pressure on Friday as financial markets digested the latest monetary policy announcements from the Bank of Japan (BoJ). Meanwhile, the US economic calendar offered up data on export and import prices for May, and market participants awaited the release of the preliminary Consumer Sentiment Index for June from the University of Michigan.

BoJ Maintains Status Quo, Eyes Future Bond Purchase Reduction

In its June meeting, the BoJ opted to keep its policy rate unchanged at 0%, marking the second consecutive meeting with no rate adjustments, as had been widely anticipated. The central bank also left its massive monthly Japanese government bonds (JGB) buying program, which totals JPY6 trillion ($38.14 billion), unchanged.

However, the BoJ signaled potential changes ahead. The bank announced plans to hold a meeting with bond market participants to outline a specific plan for reducing bond purchases over the next 1-2 years, with details expected at their next policy meeting in July. BoJ Governor Kazuo Ueda emphasized the importance of reducing JGB purchases in a predictable manner, while maintaining flexibility to ensure stability in the bond market.

Market Reaction: Yen Weakens, Dollar Strengthens

Following the BoJ’s announcement, the USD/JPY pair gained bullish momentum, rising 0.6% on the day to around 158.00. The JPY’s broad-based weakness was also reflected in the EUR/JPY pair, which was up 0.4% to 169.30. This depreciation of the Yen highlights market concerns over Japan’s continued loose monetary policy amidst potential future adjustments.

In contrast, the US Dollar (USD) continued to strengthen against its rivals. This rally in the USD was bolstered by a risk-averse market sentiment, the pronounced decline of the Yen, and a lack of demand for European currencies amid political uncertainties. By press time, the USD Index was trading at its highest level since early March, up 0.25% on the day near 105.50.

European Currencies and Gold: Divergent Trends

The EUR/USD pair came under significant bearish pressure during the European trading session, edging closer to the 1.0700 mark. Meanwhile, the GBP/USD pair, which had snapped a three-day winning streak on Thursday, continued its downward trajectory early Friday and was last seen trading below 1.2750.

Despite the general strength of the USD, gold (XAU/USD) managed to hold onto modest daily gains, trading around $2,310. The precious metal appeared to be benefiting from heightened risk aversion as investors sought safe-haven assets ahead of the weekend.

Outlook: US Data and BoJ Policy Watch

Looking ahead, market participants will closely monitor the upcoming US data releases, including the preliminary Consumer Sentiment Index for June, which could provide further insights into the health of the US economy and influence market sentiment.

In Japan, the focus will remain on the BoJ’s policy trajectory and any signals regarding the reduction of JGB purchases. Investors will be keen to see how the BoJ balances its commitment to maintaining market stability with the need to eventually wind down its extensive bond-buying program.

As global economic uncertainties persist, the interplay between central bank policies and currency movements will continue to shape the market landscape, with the JPY and USD at the forefront of these developments.