Yen Drops to Two-Year Low vs. Dollar

The Japanese yen extended its rally to the downside today, reaching the lowest level in more than two years, as Japan’s inflation continued to decline, fueling speculations that policy makers will take additional steps to stimulate economy, weakening the currency at the same time.
Japan’s core Consumer Price Index declined 0.1 percent in November, while it was unchanged in the prior month. The Tokyo CPI (both core and non-core) retreated as much as 0.6 percent in December, more than analysts have predicted (0.5 percent). The data led to speculations that the Bank of Japan will perform additional easing to battle deflation.
Market participants have expected that the BoJ would change its inflation target from 1 percent to 2 percent on its last policy meeting. The central bank left the target unchanged, but hinted that it may be reviewed on the next meeting.
USD/JPY rose from 86.08 to 86.39 as of 1:28 GMT today and its daily high of 86.62 was highest sine August 2010. EUR/JPY climbed from 114.39 and GBP/JPY advanced from 138.57 to 139.14.

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