The dollar traded at around ¥104 in Tokyo trading Thursday after soaring to a five-year high of ¥104.36 in New York overnight on the U.S. Federal Reserve’s decision to taper bond purchases under its quantitative easing policy.
At 5 p.m., the dollar was quoted at ¥103.97-98, up from ¥102.99-103.03 at the same time Wednesday. The euro was at $1.3687-3688, down from $1.3769-3772, and at ¥142.31-33, up from ¥141.81-84.
The dollar’s topside was capped by selling to lock in profits following the overnight surge, while its downside was supported by buying on dips on the back of stock price rises, traders said.
“Besides profit-taking, there are no incentives to sell the dollar aggressively for the time being,” an official at a major Japanese bank said.
At a two-day Federal Open Market Committee meeting through Wednesday, the U.S. central bank decided to cut its monthly purchases of Treasury and mortgage-backed securities by $10 billion, reducing it to $75 billion, beginning in January.
Currency traders generally reacted to the FOMC announcement in a calm manner, given that the start of tapering had been well factored in and that the $10 billion cut was taken as a gentle step.
The FOMC statement also indicated the Fed is willing to keep its interest rate target near zero for an even longer period. The Fed clarified its stance of maintaining the loose monetary policy as long as inflation is below 2 percent.
“The statement provided relief to market participants,” a trust bank official said.
After the Fed’s decision, many analysts forecast the dollar will advance to ¥105 to ¥106 over the next three months.