The yen strengthened from its weakest level against the dollar since June 2010 as Bank of Japan (8301) officials started a two-day policy meeting.
Japan’s currency has declined 6 percent versus the greenback in the past month on speculation the BOJ, under pressure from the government of new Prime Minister Shinzo Abe, will boost stimulus to lift the economy out of recession. Technical indicators signaled the yen’s decline may have been overdone, while traders became the least bearish on the currency in eight weeks. The Dollar Index was near a one-week high before reports this week forecast show U.S. home sales increased.
“People are playing chicken as we go into the BOJ meeting,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “We need a correction in the yen, although the mid- to long-term trend has probably shifted to its weakness.”
The yen rose 0.6 percent to 89.54 per dollar at 8:26 a.m. in London after depreciating to 90.25, the weakest since June 23, 2010. Japan’s currency gained 0.6 percent to 119.30 per euro, after sliding 0.8 percent last week. The dollar was little changed at $1.3324 per euro.
U.S. financial markets are shut today for a public holiday.
All 23 economists in a Bloomberg News survey predict the BOJ will expand asset purchases this week, with the median estimate for a 10 trillion yen increase. Abe has announced a spending package of similar size and is calling on the central bank to double its inflation target to 2 percent.
New Governor
The BOJ will need to slow monetary easing if the effects on prices and the yen go too far, according to Koichi Hamada, an economist and adviser to Abe on choosing a new central bank chief when Governor Masaaki Shirakawa’s term ends in April.
“If it goes too far, it should be stopped,” he said yesterday after appearing with Economy Minister Akira Amari on NHK Television.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on an advance -- so-called net shorts -- was 65,727 in the period through Jan. 15, figures from the Washington-based Commodity Futures Trading Commission showed. That’s the least since the reading on Nov. 20.
The yen’s 14-day relative strength index against the dollar declined to 26 on Jan. 18, below the level of 30 that some traders see as a signal an asset has fallen too far and may be due to reverse course. The yen’s RSI versus the euro ended last week at 29.
‘Excessive Weakness’
“The pressure to temporarily correct excessive weakness in the yen is likely to increase,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo.
The yen will trade at 87 per dollar and 114 per euro by March 31, according to Bloomberg surveys of analysts. The dispersion in estimates, measured by their variation from the mean, was 3.6 percent for dollar-yen and 4.7 percent for euro- yen quarter-end projections. The two figures are the widest among 16 Group of 10 currency pairs tracked by Bloomberg.
Chinese ships entered Japanese territorial waters near disputed islands today, according to a faxed statement from Japan’s Coast Guard. Japan’s purchase of the uninhabited islands, known as Senkaku in Japanese and Diaoyu in Chinese, in September has disrupted more than $300 billion worth of trade between the nations.
China said yesterday it wants to peacefully settle territorial issues.
Yen’s Decline
The yen has weakened 6.3 percent in the past month, the biggest decline among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.3 percent and the euro rose 1.5 percent.
Sales of existing U.S. homes climbed 1.2 percent last month to a 5.1 million annual rate, the strongest since November 2009, according to a Bloomberg survey before the report from the National Association of Realtors tomorrow. Data on Jan. 25 will indicate new-home sales climbed to a 385,000 annual pace last month, the best showing since April 2010, the surveys showed.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, was at 79.931 after rising to 80.187 on Jan. 18, the highest since Jan. 10.
Economists predict the ZEW Center for European Economic Research will says tomorrow its index of German investor and analyst expectations improved this month. The gauge, which aims to predict economic developments six months in advance, rose to 12 from 6.9 in December, according to the median estimate in a Bloomberg survey before the report.
Signs of stabilization in euro-area data this week “should support our view that the Eurozone economic downturn is close to bottoming,” Peter Dragicevich, a currency economist in Sydney at Commonwealth bank of Australia (CBA), wrote today in a note to clients. The euro “should rise over coming months,” he wrote.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net Kristine Aquino in Singapore at kaquino1@bloomberg.net;
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
