The Euro gained strong support following the ECB policy meeting despite a lack of hawkish rhetoric and the dollar weakened to 23-month lows against the single currency.
During the New York session, there were reports that US Special Prosecutor Mueller was looking to launch a probe President Trump’s business affairs and this triggered a fresh round of selling pressure on the US currency with a quick slide below 112.00 to 3-week lows just above 111.50.
Following the Bank of Japan’s policy decision and commentary from Bank Governor Kuroda, markets were confident that the central bank would maintain a very loose monetary policy which provided net support to Japanese stocks.
A loose Japanese policy would also tend to weaken the yen, although the main feature during the past 24 hours has been another heavy round of dollar selling.
Although USD/JPY was able to demonstrate some resilience, the underlying defensive dollar tone still had a significant impact in limiting support for Japanese stocks.
Asian equity markets were unable to make significant headway with the US political environment and dollar losses contributing to the cautious sentiment.
The Nikkei index moved higher after a hesitant start, but hit selling interest above 21,000 and drifted into negative territory at the session break. Narrow ranges dominated after the break as position adjustment curbed price action.
At the close, there was a Nikkei 225 index decline of 44.84 points and 0.22% at 20,099.75.
Developments surrounding the dollar and the US Administration will tend to dominate market sentiment in the short term with the Nikkei dependent on yen weakness to avoid sharp selling pressure.
Nikkei 225 Index 4-Hour Chart