Forex - USD/JPY drops as market bets Fed will keep policy loose

Investing.com - The dollar softened against the yen on Friday as investors took up fresh positions betting that the Federal Reserve will keep monetary policy loose at its meeting next week even if it decides to taper the pace of its monthly asset purchases.

In U.S. trading on Friday, USD/JPY was trading at 99.23, down 0.34%, up from a session low of 99.20 and off a high of 99.98.

The pair was likely to find support at 99.02, Thursday's low, and resistance at 99.90, Thursday's high.

While many investors expect the Federal Reserve to announce plans to taper its USD85 billion in monthly asset purchases at its Sept. 17-18 meeting, most feel the U.S. central bank will trim that figure only slightly, which softened the greenback on Friday.

Stimulus tools such as Fed asset purchases weaken the dollar by driving down borrowing costs, though expectations that the Fed will only slightly cut the amount of bonds it purchases each month — if it decides at all — continued to bolster the yen's safe-haven appeal, especially after a string of soft U.S. indicators hit the wire earlier.

In the U.S. earlier, the Thomson Reuters/University of Michigan preliminary U.S. consumer sentiment index fell to 76.8 in September from 82.1 in August, worse than expectations for a decline to 82.0.

Elsewhere, official data showed that U.S. retail sales rose 0.2% in August, missing expectations for a 0.4% rise after an upwardly revised 0.4% increase the previous month.

Core retail sales, excluding automobiles, rose 0.1% last month, short of expectations for a 0.3% gain after an upwardly revised 0.6% increase in July.

Elsewhere, separate data showed that the U.S. producer price index rose 0.3% in August, more than the expected 0.2% after a flat reading the previous month.

Core producer price inflation, excluding food and energy, was flat last month, compared to expectations for a 0.1% rise, after a 0.1% gain in July.

The yen, meanwhile, was down against the pound and up against the euro, with GBP/JPY up 0.20% and trading at 157.62 and EUR/JPY trading down 0.26% at 132.03.

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