Dollar: Currency surges vs yen on Japan stimulus hopes

U.S. stock-index futures rose on Wednesday, as European and Japanese stocks gained in early trade ahead of policy announcements from the U.S. Federal Reserve and the Bank of Japan.

The Japanese government is planning direct fiscal spending of around 7 trillion yen ($67 billion) to help fund an economic stimulus package totaling more than 28 trillion yen, two people briefed on the matter told Reuters on Thursday.

The news comes as speculation mounts that the Bank of Japan (BoJ) will further ease monetary policy after a two-day meeting Friday. Futures augured a tepid start on Wall Street.

Nationwide, the consumer price index (CPI) fell 0.4 percent on-year, while the core CPI, which excludes fresh food items, dropped 0.5 percent on-year. While analysts expect the Fed to stand pat on interest rates, they did say recently that the strength in USA economic data coupled with the recovery of investor sentiment since Britain’s vote to leave the European Union have revived the possibility of a rate increase later this year.

But Japanese shares continue to be battered by the strength of the yen.

The Fed, meanwhile, said on Wednesday after its two-day policy meeting that it was less anxious about possible shocks to the USA economy, suggesting that a hike as early as September was not out of the question though not signalling it clearly.

“As far as the Fed goes and reaction to that, really it’s just confirmation that we’re not going to see rapid rate hikes in the USA”, said Nick Tvedt, senior corporate FX dealer at NZForex.

Analysts warned the Nikkei, which rose 1.7 percent, could retreat if monetary stimulus measures released at Friday’s Bank of Japan meeting disappoint.

In Tokyo share trading, Mitsubishi UFJ Financial Group was off 2.55 percent at 484.6 yen while rival Sumitomo Mitsui Financial Group fell 2.26 percent to end at 3,070 yen, after saying Wednesday net profit tumbled 31 percent in April-June.

Global benchmark Brent crude futures dropped 0.1 percent to $42.64.

Higher-yielding currencies also made inroads against the USA unit, with the Australian dollar putting on 0.7 per cent and South Korea’s won 0.9 per cent, while the under-pressure Turkish lira climbed 0.8 per cent. Malaysia’s ringgit added 0.7 per cent and the Indonesian rupiah was 0.2 per cent higher.

Australian stocks added 0.2 percent and South Korea’s Kospi .KS11 rose 0.1 percent. Market strategists have said that stocks have gotten expensive in recent days, and many investors are waiting for earnings to play out before making any major moves. It fell 78 cents to close at $41.14 a barrel on Thursday.

The yen was last up 1.1 percent at 104.11 per dollar, with all eyes on the BOJ’s policy decision, which is usually announced some time between 0230 GMT (10:30 p.m. EDT) to 0500 GMT (01:00 a.m. EDT).