Japan's central bank has held fire on fresh stimulus as fears over Britain's future in the EU pummel financial markets. The US Fed is similarly wary of a Brexit, shying away from clear hints at its future rate policy.
In Asian trading on Thursday, Japan's currency powered to 104.11 against the dollar - its strongest level since September 2014 - as the Bank of Japan (BoJ) decided to keep its massive asset-buying program unchanged.
At the same time, the Japanese currency's surge took a bite out of Tokyo's benchmark Nikkei stock index which was down more than three percent on fears the strong yen might hurt the profits of Japan's exporters.
Ryutaro Kono, chief economist for BNP Paribas in Tokyo told the news agency AFP that BoJ policymakers apparently adopted a "wait-and-see position" because the resurgence of the yen was largely linked to concerns about Brexit.
And Marito Ueda, a senior dealer of FX Prime in Tokyo told the same news agency that the yen was being bought by investors because they expected more easing if Britons decide to leave the EU.
World markets have been in turmoil over the past week on worries about the global economic outlook and, in recent days, a growing sense that the June 23 referendum will see Britons vote to break away from the European Union.
A vote to leave the 28-member economic bloc could have significant consequences for more than 1,000 Japanese firms operating in Britain as they view the country as a staging point for doing deals in Europe.
US Fed vage on hike
The BoJ's decision came after the United States central bank, US Fed, on Wednesday decided against raising interest rates, with US Fed chair Janet Yellen sounding a warning over a British exit from the EU.
In a news conference after the Fed kept interest rates unchanged, Yellen voiced confidence in the US economy but said there were concerns about the impact a British exit would have across the world.
"Clearly, this is a very important decision for the United Kingdom and for Europe," she told reporters. "It is a decision that could have consequences for economic and financial conditions in global financial markets. If it does so, it could have consequences in turn for the US economic outlook."
The news put downward pressure on the dollar, compounded on Thursday by the BoJ's decision to hold off on expanding its 80-trillion-yen ($753-billion, 683-trillion-euro) annual stimulus program.
Uncertainty over the consequences of a Brexit might have also caused Yellen to remain vage on whether a rate increase could come at the next policy meeting in late July. Some analysts said lack of clear hint meant no hike next month.
"Although the Fed's projection touts two rate hikes, a rate hike in July is highly unlikely, which makes it questionable whether the Fed can raise rates twice in its three policy meetings left by the end of year," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
After the central banks of the United States and Japan decided to keep their powder dry for possible market disruption in the wake of the British referendum, analysts expect the Bank of England and the Swiss National Bank to also stand pat when they do a policy review later this week.
ECB pledges backstop for markets
The European Central Bank has already refrained from any major rate and stimulus moves at its recent meetings. Moreover, the central bank for euro currency area appears willing to publicly pledge to backstop financial markets in tandem with the Bank of England should markets go haywire in the wake of an "out" vote in Britain.
On Tuesday, an official with knowledge of the matter told the news agency Reuters that the ECB was preparing an announcement scheduled to come on June 24 if an early-morning result showed that British voters had chosen to leave the EU. The aim was to bolster investor confidence across Europe and contain further market jitters.
"There will be a statement to do whatever it takes to maintain adequate market liquidity," said the senior central bank official said, speaking on condition of anonymity.
The ECB's pledge is likely to involve opening so-called swap lines with the Bank of England, allowing euros and sterling to be exchanged and effectively making unlimited funding in both currencies available to European banks.
uhe/jd (AFP, Reuters, dpa)