The monetary authorities of two powerhouses, the EU and Japan, are moving in opposite directions — as are their currencies against the dollar.
The Japanese yen slumped to a 24-year low as the Bank of Japan’s ultra-loose monetary policy stance continued to weigh.
The euro, on the other hand, rose on Tuesday, drawing support from the European Central Bank’s plans to raise interest rates to contain inflation.
The yen fell over 0.5 percent to a 24-year low of 135.835per dollar, continuing to weaken after the Bank of Japan on Friday dashed any mild expectations of a change in policy and renewed its commitment to ultra-easy monetary settings.
The euro, meanwhile, was0.4 per cent firmer at $1.0554after ECB chief economist Philip Lane said the ECB will raise interest rates by 25 basis points at its July meeting, but the size of its September hike is still to be decided, suggesting a larger 50 basis point hike could be on the cards.
Japanese Prime MinisterFumio Kishida said on Tuesday the central bank should maintain its ultra-loose monetary policy, brushing aside opposition calls that the policy be tweaked to target Japan’srising cost of living.
Kishida said the recent sharp falls in the yen were worrying but monetary policy and exchange rates must be dealt with separately, while fiscal policy should take the principle role in addressing the impact of rising prices.
Under the current circumstances, the status quo on monetary policy must be maintained, although specific policy tools are up to the BOJto decide, Kishida said in a debate among the leaders of Japan’s political parties, ahead of a July 10 upper house election.
The rupee fell 15 paise to78.13 to the dollar on Tuesday as persistent foreign fund outflows and a jump in crude oil prices weighed on sentiment.