BLBG:Yen Gains a Second Day on Bets Declines Were Excessive
The yen headed for its biggest two- day gain since November, extending a rally from its 2 1/2 year low on speculation recent declines were excessive.
The currency strengthened against all of its 16 major counterparts even amid prospects Japanese Prime Minister Shinzo Abe will press the central bank to expand monetary stimulus at a Jan. 21-22 meeting in an effort to revive growth. The euro maintained two days of gains versus the dollar amid speculation the European Central Bank will refrain from cutting borrowing costs this week. Australia’s dollar slid after data showed the nation’s trade deficit widened to the most since 2008.
“The yen has had a very sharp depreciation and it must be due for some kind of consolidation,” said Derek Mumford, a Sydney-based director at Rochford Capital, a currency risk- management company. “I do think dollar-yen needs a bit of a breather. The fact that the Bank of Japan (8301) is under pressure to make monetary policy even easier and print money is going to drive the yen weaker over time.”
Japan’s currency rose 0.4 percent to 87.48 per dollar at 1:58 p.m. in Tokyo, gaining 0.8 percent since Jan. 4 and set for the biggest two-day percentage advance since Nov. 8. It touched 88.41 on Jan. 4, the weakest since July 2010. The yen was at 114.78 per euro, 0.3 percent above the close yesterday.
The euro bought $1.3120 from $1.3117, after gaining 0.5 percent over the previous two days.
The yen’s 14-day relative strength index against the dollar was at 25 today, below the 30 level that some traders view as a signal that an asset’s price has fallen too fast. The similar gauge for the yen versus the euro was at 30.
ESM Purchase
The yen pared advances against the dollar and euro briefly after Japan’s Finance Minister Taro Aso said the nation will use foreign-exchange reserves to buy European Stability Mechanism bonds.
The purchases will help to stabilize the yen, he said.
“The headline on the ESM bond purchase moved the yen a little lower,” said Yuji Saito, director of the foreign- exchange department in Tokyo at Credit Agricole SA. “But if they use foreign-exchange reserves it wouldn’t lead to direct buying of the euro against the yen.”
The Japanese government will watch the currency market closely and will strengthen cooperation with the BOJ to counter deflation, it said today in a draft of its emergency economic measures. Abe said Jan. 1 that “bold” monetary policy is one of the three prongs of his economic measures.
Japan’s government and the central bank are discussing a policy accord to strengthen their relationship, the Mainichi newspaper reported today, without citing anyone. The accord won’t set a time frame for achieving 2 percent inflation sought by Abe, the newspaper said. The BOJ’s current inflation target is 1 percent.
BOJ Meeting
“Yen weakness is likely to remain intact until the next BOJ meeting,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “Investors may be looking to buy the dollar-yen on dips.”
The yen has tumbled 6.9 percent over the past month, making it the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has weakened 0.6 percent and the euro has risen 1 percent.
The ECB meets Jan. 10 and will keep its main refinancing rate at a record low of 0.75 percent, according to the median estimate of 55 economists in a Bloomberg News survey.
A majority of ECB policy makers were open to cutting the benchmark rate at the bank’s meeting in December after revising down economic and inflation projections that forecast a 0.3 percent contraction this year. Rates were kept on hold because of the negative signals a reduction may send, three officials with knowledge of deliberations said Dec. 7.
European Jobless
Data today may show the euro-area jobless rate rose to 11.8 percent in November from 11.7 percent in October, according to the median estimate of economists in a Bloomberg News poll. That would be the highest since the currency bloc was formed.
Economists predicted that a report on German factory orders today will show a 1.4 percent in November, adjusted for seasonal swings and inflation. They increased 3.9 percent in the previous month.
“The ECB keeping rates on hold could be supportive of the euro,” said Rochford’s Mumford. “The ongoing saga in Europe is taking a bit of a back seat at the moment. It could raise its ugly head at any stage, so I would still be looking to sell into euro strength towards $1.32-$1.33.”
Australia’s dollar weakened against all of its 16 most- traded peers after the nation’s statistics office said imports outpaced exports by A$2.64 billion ($2.77 billion) in November. That compared with a revised A$2.44 billion shortfall in October and was the biggest deficit since March 2008.
The Australian dollar dropped 0.2 percent to $1.0479 and declined 0.6 percent to 91.65 yen.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
