By Peter Nurse

Investing.com - The U.S. dollar traded largely unchanged in limited European trade Wednesday, but posted gains against the Japanese yen after latest minutes from the Bank of Japan suggested its accommodative monetary stance is likely to remain in place.

At 02:35 ET (07:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely flat at 103.870, above its lowest level since mid-June at 103.44 seen on Dec. 14.

USD/JPY rose 0.3% to 133.86, bouncing back after dropping as low as 130.58 just over a week ago when the BOJ announced the loosening of the 10-year Japanese government bond yield policy band. That had prompted speculation that the central bank was set to tighten its ultra-loose monetary policy.

However, the BOJ’s change in stance was aimed at the smooth functioning of the Japanese government bond market, not at changing the trajectory of policy, according to the views of policymakers in the minutes of the December meeting.

This has hit the Japanese yen, particularly against the dollar, as it suggests a continuation of ultra-accommodative policy. However, losses have been limited given the holiday conditions as well as a lack of belief that the BOJ can maintain this stance long-term, especially as Japan's consumer inflation hit a four-decade high of 3.7% in November.

There are a number of U.S. economic releases due Wednesday, including pending home sales, the Richmond manufacturing index, and the Redbook.

“We doubt data will be able to shake markets in the low-volatility environment of the festive period. News from China and on the energy crisis is more likely to drive any significant move if anything,” said analysts at ING, in a note.

Elsewhere, EUR/USD rose 0.1% to 1.0650, staying in a limited trading range with no major data releases due in the next two weeks for the euro, at least until the German CPI figures for December in early January and with no European Central Bank speakers scheduled.

GBP/USD rose 0.2% to 1.2044, just above its low for the month of 1.1993, reached on Dec. 22, while the risk-sensitive AUD/USD rose 0.5% to 0.6763.

USD/CNY rose 0.2% to 6.9721, with investors buoyed by China's announcement on Monday it would stop requiring inbound travelers to go into quarantine starting from Jan. 8.

However, surging COVID cases are hurting confidence, as they point towards more disruption to the economy through the first quarter.

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