BLBG:Yen Falls Most in Three Weeks Against Dollar on Election
The yen dropped the most in three weeks against the dollar amid speculation elections will pave the way for a new government with a more aggressive stance on monetary easing, undermining demand for Japanese assets.
Japan’s currency weakened at least 0.2 percent versus all 16 of its major peers as investors speculated a power shift will put more pressure on the central bank to add stimulus to revive the economy. The dollar dropped for the first time in six days against the euro before a report forecast to show U.S. retail sales fell in October, spurring demand for the safety of the greenback. The shared currency rose from a two-month low against the dollar as Italy prepared to sell debt.
“The prospect of elections is being used as an opportunity to add to short yen positions,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S (DANSKE) in Copenhagen. “The news adds to the policy uncertainty in Japan.” A short position is a bet that an asset will fall.
The yen fell 1 percent to 101.83 per euro at 9:31 a.m. London time, and slid 0.7 percent to 79.97 per dollar. The euro rose 0.2 percent to $1.2735 after sliding to $1.2662 yesterday, the weakest level since Sept. 7.
Japan’s Prime Minister Yoshihiko Noda said he is willing to dissolve the Diet on Nov. 16, setting the stage for elections that polls show his ruling Democratic Party will lose.
Speaking in parliament a day after the DPJ reached a deal with the two main opposition parties on legislation to fund the rest of this year’s budget, Noda said he would dissolve the lower house if a deal is reached to cut the number of lawmakers in the chamber. Shinzo Abe, head of the Liberal Democratic Party and a former prime minister, said he agreed.
Opposition
“The opposition LDP is likely to win the election if it happens,” said Masafumi Yamamoto, chief foreign-exchange strategist in Tokyo at Barclays Plc. “The LDP head will then aim for higher inflation and increase pressure for the BOJ to ease further. That speculation has triggered a selloff in the yen.”
The BOJ increased its asset-purchase program by 11 trillion yen to 66 trillion yen on Oct. 30, saying the central bank and the government will make the “utmost” efforts to overcome deflation. Governor Masaaki Shirakawa and his board next meet on Nov. 19-20.
A stronger yen makes Japanese products costlier overseas, reducing the competitiveness of domestic exporters, while it cuts the value of income earned abroad when repatriated. The yen is 6 percent from its post-World War II record high of 75.35 against the dollar reached Oct. 31, 2011.
Industrial Production
The euro rose against most of it major counterparts as Italy plans to sell as much as 3.5 billion euros of notes due in 2015 and a total of 1.5 billion euros of 2023 and 2029 bonds.
Industrial output in the 17-member euro area declined 2 percent in September from August, when it increased 0.6 percent, according to the median estimate of economists in a Bloomberg News survey before the data is released today.
“The euro will probably weaken over the rest of the week,” said Peter Dragicevich, a currency economist in Sydney at Commonwealth Bank of Australia. (CBA) “The economic data in Europe is still continuing to deteriorate. The outlook for the economy still remains quite poor.”
Dollar Index
Europe’s common currency has lost 6.2 percent in the past 12 months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen slid 2.9 percent and the dollar rose 1.2 percent.
The 14-day relative strength index for the euro versus the dollar fell to 33.4 yesterday, the lowest level since July 24 and approaching the 30 level that signals it may be “oversold” and have fallen too rapidly.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed at 81.04. It rose to 81.24 yesterday, the most since Sept. 6.
U.S. retail sales declined 0.2 percent in October, following a 1.1 percent gain in September, according to the median forecast of 83 economists surveyed by Bloomberg.
Implied volatility of three-month options for Group of Seven currencies slid to 7.2 percent today, matching the lowest since October 2007, according to the JPMorgan G7 Volatility Index. A decrease in price fluctuations makes investments in currencies with higher lending rates more attractive because the risk becomes smaller that market moves will erase profits.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
