Dollar extends yen gains in Asia as Fed, BoJ diverge

The dollar fell back against the euro Thursday but firmed against the yen, as markets assessed the Federal Reserve's outlook for US interest rates.

The day before, the dollar had rallied against both main rivals and the Dow reached a fresh record high after the US central bank kept alive the chance of a December increase in American borrowing costs.

Wall Street was weaker on Thursday on profit-taking.

Fed chief Janet Yellen said the world's biggest economy was "performing well". It also emerged from the closely-watched meeting that most members of the policy board wanted to lift borrowing costs by December.

The central bank also announced it would next month begin cutting back on its holdings of bonds and other assets built up as part of a scheme to keep rates low and steer the economy through the global financial crisis a decade ago.

"The Federal Reserve's intention to start shrinking its balance sheet in October and hike interest rates in December was positive for the US dollar," said London Capital Group analyst Jasper Lawler.

"The glacially slow pace of the intended unwind of QE (quantitative easing) meant there were no ruffled feathers in stock markets," the expert said.

"The prospect of QT (quantitative tightening) could mean markets are in the last gasps of a two week rally, but there is no sign of sentiment souring yet."

Accendo analyst Mike van Dulken agreed.

"Equities are taking the Fed's latest policy tightening move in their stride. Probably because it was one of the most telegraphed moves ever, balanced up with the door being left ajar for another December hike... No drama, just like the Fed (and markets) prefer."

- Gains against yen -

While the dollar slid back against the euro, it rose further versus the yen after the Bank of Japan decided against altering its ultra-loose monetary policy.

The dollar's gains come after a run of losses in recent months as tepid inflation and a lack of movement on US President Donald Trump's economic agenda in Congress had seen investors bet on no more rate hikes this year.

The jump in the dollar against the yen boosted Japanese exporters, which helped the Nikkei index close 0.1-percent higher Thursday.

In Europe, shares in Germany's second-largest lender Commerzbank leapt as rumours that the government might soon sell off its stake set financial circles abuzz.

The bank's stock briefly added more than 5.0 percent, but was showing a gain of 1.5 percent at the close of trade, at 11.21 euros.

In Dublin, Ryanair shares were showing a loss of 0.3 percent at 16.45 euros in closing trade after chief executrive Michael O'Leary apologised to shareholders at the airline's annual meeting for a raft of flight cancellations.

"It's difficult timing for Ryanair which had been making reputational gains against rival EasyJet," said LCG's Lawler.

"The setback could cost precious summer bookings next season."

In oil markets, both main contracts dipped following a rally of nearly two percent on Wednesday. Data showed US petrol stockpiles have fallen to a 22-month low and there is speculation that Nigeria and Libya will join the OPEC-Russia production cuts.

Elsewhere, the World Trade Organization upped its forecast for global trade growth in 2017 on stronger-than-expected demand for merchandise in Asia and North America.

A projection of 2.4-percent growth has been boosted to 3.6 percent, the WTO said.

- Key figures around 1540 GMT -

New York - DOW: DOWN 0.1 percent at 22,389.65 points

London - FTSE 100: DOWN 0.1 percent at 7,263.90 (close)

Frankfurt - DAX 30: UP 0.3 percent at 12,600 (close)

Paris - CAC 40: UP 0.5 percent at 5,267.29 (close)

EURO STOXX 50: UP 0.4 percent at 3,539.59 (close)

Tokyo - Nikkei 225: UP 0.1 percent at 20,347.48 (close)

Hong Kong - Hang Seng: DOWN 0.1 percent at 28,110.33 (close)

Shanghai - Composite: DOWN 0.2 percent at 3,357.85 (close)

Euro/dollar: UP at $1.1937 from $1.1925

Dollar/yen: UP at 112.32 yen from 112.14 yen

Pound/dollar: UP at $1.3555 from $1.3512

Oil - Brent North Sea: DOWN seven cents at $56.22 per barrel

Oil - West Texas Intermediate: DOWN nine cents at $50.60

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Source: AFP