BLBG:Yen Falls, Trims Weekly Gain, as Abe Meets Obama; Aussie Climbs
The yen weakened against all its major peers, trimming weekly gains, as Japanese Prime Minister Shinzo Abe prepared to meet U.S. President Barack Obama.
The meeting follows a Group of 20 summit where finance ministers and central bankers signaled support for Japanese stimulus as long as Abe’s ministers cease public advocation of a weaker currency. The euro gained ahead of German economic data forecast to show business sentiment rose to an eight-month high. Australia’s dollar rallied after the Reserve Bank signaled that the bar is high for currency intervention.
“The market will be watching how supportive the U.S. will be for Abe’s economic policies,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo. “If they see approval for easier monetary policy, the yen can weaken further.”
The yen fell 0.2 percent to 93.32 per dollar as of 2:08 p.m. in Tokyo, and 0.4 percent to 123.29 against the euro. The 17-nation euro rose 0.2 percent to $1.3211, after touching $1.3161 yesterday, the lowest since Jan. 10.
For the week, the euro was set for a 1.1 percent decline versus the greenback and a 1.2 percent drop against the yen.
The Japanese currency is headed for a 0.2 percent gain against the dollar, the most since the five days ended Nov. 9. That was a week before the calling of Japanese elections that swept Abe’s Liberal Democratic Party to power on pledges to defeat deflation and counter the yen’s strength.
Abe and Obama are expected to discuss trade and security issues during their meeting. Obama’s deputy national security adviser for international economic affairs, Mike Froman, declined to say whether they will discuss currency valuations.
Washington Visit
After a two-day meeting in Moscow, the G-20 pledged in a statement on Feb. 16 not to “target our exchange rates for competitive purposes,” without singling out Japan.
The yen has tumbled 12 percent in the past three months against peers in a gauge of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.
Current Bank of Japan (8301) Governor Masaaki Shirakawa steps down on March 19. Economy Minister Akira Amari told parliament today that the central bank can end deflation through a decisive stance and that about 10 names have surfaced as candidates for the next governor.
Kazumasa Iwata, a former BOJ deputy governor and a potential candidate for the top job, said his proposal for the government and central bank to buy foreign bonds is aimed at helping prevent a global financial crisis, not weakening the yen, according to a report by Japan’s Jiji Press yesterday.
Bond Purchases
Abe’s LDP had proposed setting up a foreign bond fund until this week, when he said the need for it had lessened.
“While Abe’s away, the mice can play,” said Gavin Parry, managing director of Hong Kong-based brokerage Parry International Trading Ltd. “Expect more yen volatility today.”
Comments from government officials and Shirakawa’s potential successors have caused the yen to gyrate this week. Its one-week implied volatility against the greenback touched 15.7 percent today, the highest since Jan. 21. JPMorgan Chase & Co.’s G-7 Volatility Index, based on three-month options on Group of Seven nations’ currencies, reached 9.64 yesterday, the highest since Feb. 7.
Iwata’s advocacy of foreign-bond purchases makes him the most yen-bearish candidate, according to a note from Citigroup Inc. this week. Iwata and Asian Development Bank President Haruhiko Kuroda are seen as the leading contenders, the Mainichi newspaper reported yesterday, without citing anyone.
“It’s not easy for the new BOJ board to exceed market expectations,” said Noriaki Murao, a managing director of the marketing group at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “If it ends in disappointment, we’ll probably see a downward correction in the dollar-yen.”
German Confidence
In Europe, Germany’s Ifo Institute releases its business climate index today, based on a survey of 7,000 executives. It is forecast to improve to 104.9 this month, the highest since June, according to the median estimate of economists in a Bloomberg News survey.
“Markets are wanting to see an improvement in the Ifo numbers to be comforted that German growth is starting to pick up,” said Khoon Goh, a senior strategist in Singapore at Australia & New Zealand Banking Group Ltd. (ANZ) “We have a bit of uncertainty and caution before the Italian election.”
Voters go to the polls in Italy starting Sunday to elect a new parliament, with former premier Silvio Berlusconi closing the gap in opinion polls with frontrunner Pier Luigi Bersani.
Italian Election
Democratic Party candidate Bersani has covered the length of the peninsula this week to rally voters in the three must-win regions of Lombardy, Sicily and Campania. Bersani had 33.8 percent support in an SWG Institute survey published Feb. 8, compared with 27.8 percent for Berlusconi and 18.8 percent for populist rival Beppe Grillo.
“If it becomes a close race, it may result in a hung parliament, making it more difficult to push forward with reforms,” said Bank of Tokyo-Mitsubishi UFJ’s Murao.
The Australian dollar climbed after Reserve Bank of Australia Governor Glenn Stevens said today he’d need to be confident the currency is “seriously overvalued” before considering intervention to weaken it.
The so-called Aussie rose against all its 16 major counterparts, climbing 0.6 percent to $1.0312.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Kevin Buckland in London at kbuckland1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
