On Friday, the US dollar rose against the Japanese yen, on course for its biggest daily gain in almost two weeks.
This was after the governor of the Bank of Japan (BOJ) reaffirmed that they would stick to their ultra-easy monetary policy, while there had been speculation that there could be a shift in policy.
Haruhiko Kuroda, the Governor of the Japanese central bank, was in the Swiss town of Davos for the World Economic Forum on Friday.
He stated that the central bank wanted to achieve its inflation target of 2% in a sustainable and stable manner and it would accomplish this goal by sticking to its existing ultra-easy monetary policy.
The BOJ has become the last major central bank to still continue with such a loose monetary policy, while others are busy tightening theirs.
Speculators have bet that it is also moving towards tightening, which resulted in a rally in the Japanese yen. This has caused the dollar/yen currency pair to see losses of 14% in the last three months.
Market analysts said that doubts had begun to emerge within the BOJ itself about whether it will be able to bring inflation back to its level of 2% in the country.
Considering that the rest of the world has already begun to see a decline in inflation, including the United States, this could be a valid concern.
Therefore, there would not be any change in policy of the BOJ right now, or even in the next meeting, as per the governor.
The greenback climbed as much as 130.60 yen and was trading at a value of 129.58, which is a rise of 0.9%.
There had been a 1.3% gain in the US dollar against the Japanese currency in the week. However, the dollar had remained flat against a basket of its peers.
On Friday, the latest data published showed that core consumer prices in Japan had recorded a rise of 4.0% in the month of December as opposed to a year earlier.
This was twice the target that the Bank of Japan wishes to achieve. Market analysts said that the inflation problem in Japan that exists right now has not been seen in about four decades.
This means that the dollar/yen currency pair is going to go down and the only question to ask is how quickly this will happen.
Throughout the week, the US dollar has been on the defensive against its peers, as a string of data released in major economies does not bode well for the economic growth in the US.
This includes everything from inflation to business activity and consumer spending. All data shows that inflation is going to go down, which means that most economies will fare well.
To put it simply, most of the world will do a lot better than the United States in the first half of the year, including China and Europe.
This is going to result in the US dollar recording declines.