2013.06.1002:44:43UTC+00Yen drops ahead of BOJ; Aussie, Euro also back down

The Japanese yen retreated Monday, a day ahead of a central-bank decision, while lackluster Chinese economic data kicked the Australian dollar down as well.

After declining below the ¥95 handle late last week, the dollar was back up at ¥98.25, solidly above its ¥97.44 level Friday afternoon in North America.

The yen’s declines came as the Bank of Japan kicked off its two-day meeting in Tokyo, with investors waiting to see whether the central bank would offer any further easing moves after standing pat at its previous gathering in late May.

Still, analysts at Crédit Agricole said the Bank of Japan decision may have less impact on the dollar-yen rate than what happens in the U.S. going forward.

“Some investors may hope for additional measures in order to ease market conditions. However, ultimately [the dollar’s rate against the yen] will also remain driven by conditions in the U.S.,” they wrote Monday.

“Hence, decreasing uncertainty about the [Federal Reserve’s] monetary-policy stance, combined with stable risk sentiment, is needed in order to drive the pair higher once again,” they wrote.

The dollar managed to breach the ¥103 mark in May before beginning its march to the lows seen last week following disappointment over a slate of reform policies from Japanese Prime Minister Shinzo Abe.

However, Abe’s announcement Sunday that he planned to roll out “drastic” tax cuts for corporate investment this fall got a better reception, helping drive the yen lower and Japanese stocks sharply higher.

Australia’s currency also lost ground Monday, with the Aussie dollar dropping to 94.12 U.S. cents from late Friday’s 94.97 U.S. cents.

The decline — extending recent weakness for the Australian dollar — came after China released a slate of data over the weekend showing a mild slowdown in growth and a much softer gain in exports than had been forecast.

China is a major buyer of Australian exports, making the Aussie especially sensitive to the Chinese economic outlook.

Meanwhile, the euro fell back below the $1.32 level, buying $1.3194, down from $1.3217 at the end of the previous week.

The Crédit Agricole analysts said that while the euro got a boost from a lack of dovish talk last week by European Central Bank President Mario Draghi, a subsequent hit to risk sentiment among euro-zone investors dragged on the currency.

If euro-based assets underperform, it could send capital moving out of the currency, they wrote, and “it may be difficult for the [euro] to appreciate even further, solely based on monetary-policy expectations.”

“This is especially true if the risk-assets-related capital-flow situation starts to turn against the single currency once again. Accordingly, we continue to believe that [the euro’s] levels around the upper end of the last few months’ range will prove unsustainable,” they wrote.

The British pound also sat lower in Monday trade, buying $1.5523, easing from $1.5553 late Friday.

And with the currency majors mostly lower, gauges of the U.S. dollar ticked upward, with the ICE dollar index — measuring the greenback against six rivals — rising to 81.844 from 81.657.

The WSJ Dollar Index — which uses a slightly larger comparison basket than the ICE — advanced to 73.82 from 73.58.