Forex News – Dollar drops further against Yen, BoJ closely watching markets

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The U.S. Dollar tracked down further following the open of the European trading session, to touch yet another four-month low of 77.69.

This raises alarms amongst Japanese officials, since the Yen’s strength is not based upon its own fundamentals but as Bank of Japan governor Shirakawa said, it is a “one-sided move”.

Today Bank of Japan board member Hidetoshi Kamezaki warned that the impasse in U.S. talks to raise the debt ceiling are a having considerable impact on foreign exchange markets and a U.S. default could have serious effects on Japan’s financial system.

Kamezaki repeated that the BOJ needs to be proactive in taking action as needed but said he did not see a need for additional easing measures by the central bank at present.

“Whether the U.S. government strikes a deal on its debt ceiling by the August 2 deadline is having a considerable impact on the currency market … I am closely watching the fate of the talks,” Kamezaki said in a news conference.

The BOJ eased monetary policy just days after the devastating earthquake in March by topping up a pool of funds to buy assets ranging from government bonds to private debt.

It has kept monetary policy on hold since then, but has expressed its readiness to ease credit further if the global economic slowdown and recent yen strength threaten Japan’s return to a moderate economic recovery.

The central bank may discuss monetary easing at its next rate review on Aug. 4-5 or even earlier if the yen continues to spike.