Forex - Yen gains as Kuroda downplays negative interest rate impact

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Location: Investing.com - The yen gained in Asia on Tuesday as the central bank chief downplayed the impact of negative interest rates on inflation. USD/JPY chnaged hands at 112.22, down 0.62%, while AUD/USD traded at 0.7228, up 0.01%. The Bank of Japan's effort to boost money in circulation by charging interest for cash parked by lenders at the central bank has no direct and quick impact on raising consumer prices or inflation expectations, Governor Haruhiko Kuroda said Tuesday. "Some arguments and reports say there is a link between the monetary base and inflation expectations but increasing the monetary base alone would not immediately boost prices or inflation expectations," he told the Lower House Financial Affairs Committee. "The transmission mechanism of the QQE is to lower real interest rates and stimulate economic activity, such as capital investment and consumer spending. An improvement in the output gap will help raise inflation," he said, referring to the quantitative and qualitative easing launched in April 2013. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was quoted at 97.26, down 0.12%. Overnight, the dollar remained broadly higher against the other major currencies on Monday, hovering close to two-week highs as hopes for additional U.S. rate hikes this year continued to support the greenback. The greenback remained broadly supported after data on Friday showing that U.S. core inflation rose at the fastest rate in four years in January underlined expectations for further interest rates hikes by the Federal Reserve this year. The euro weakened after research group Markit said that its Flash Euro Zone Composite Output Index, which measures the combined output of both the manufacturing and service sectors dropped from 53.6 in January to 53.0 in February, a 13-month low and below forecasts for 53.3. The report came shprtly after data showing that French private sector activity slid into contraction territory last month, while business activity in Germany grew at the slowest pace in seven months. The data added to pressure on the European Central Bank to step up measures to bolster growth in the region. Sterling came under broad selling pressure after London Mayor Boris Johnson’s shock decision to back a campaign for Britain to exit the European Union. British Prime Minister David Cameron reached a deal with EU leaders on Friday giving Britain a special status in the bloc, which paved the way for him to call a referendum on EU membership on June 23.