TOKYO -- The yen briefly hit 105.71 against the dollar on Friday morning, the lowest in five years and 11 months. The drop was driven by the European Central Bank's overnight decision on unexpected rate cuts. To prevent deflation, the ECB announced fresh stimulus measures, including slashing its key interest rate to a record low of 0.05%.
The move encouraged currency traders to buy the greenback against the euro. This trend also sparked buying of the dollar against the yen. The Japanese currency's depreciation is sending the Japanese stock market higher and the bond market lower.
Recent years saw the yen rising quickly against the dollar following the 2008 global financial crisis, hitting a record high of 75.32 yen in the autumn of 2011. Around that time, the U.S. Federal Reserve introduced massive quantitative easing. Meanwhile, Japan lagged behind.
It now appears the Fed will end its quantitative easing program in October and a possible U.S. interest rate hike is beginning to be factored into the Tokyo market.
The Bank of Japan decided to maintain its large-scale quantitative easing program at its policy board meeting, which ended Thursday. At the post-meeting press conference, BOJ Gov. Haruhiko Kuroda stressed that the central bank intends to continue monetary easing until Japan's inflation remains firm at 2%. On the market, there is lingering speculation that the BOJ will introduce further stimulus.
Tokyo stocks ended the morning session higher Friday, with the Nikkei Stock Average briefly rising more than 110 points to near the 15,800 line. The weaker yen encouraged buying of automakers and other exporters.