BLBG:Yen Drops to Near 3-Year Low on BOJ Bets; Pound Slides
The yen sank to an almost three-year low as Japan’s government narrowed down candidates to run the central bank and pursue the prime minister’s plan for expanded monetary stimulus.
The Asian currency declined against all its major peers after an official said Prime Minister Shinzo Abe is likely to nominate Asian Development Bank President Haruhiko Kuroda for Bank of Japan (8301) governor. The pound slid for a second day after Moody’s Investors Service stripped the U.K. of its top rating for the first time. Australia’s dollar fell after a gauge of Chinese manufacturing came in below economists’ estimates. The Dollar Index rose to an an almost six-month high.
“The market has taken on board speculation that Kuroda will be the new BOJ governor, and the expectation is that he will favor aggressive policy easing,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “That’s provided the next leg down for the yen.”
The yen weakened 0.9 percent to 94.21 per dollar as of 6:43 a.m. in London from the close in New York last week. It earlier touched 94.77, the weakest since May 2010. The yen depreciated 1 percent to 124.49 per euro. Europe’s shared currency rose 0.2 percent to $1.3216.
The yen has dropped 6.9 percent this year, the biggest loser among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The pound has seen the second- biggest decline, falling 5.8 percent.
Reshape BOJ
Abe is also likely to tap Kikuo Iwata, an academic who has advocated a ramping up in Japan’s monetary base, and Hiroshi Nakaso, a senior BOJ official, as deputy governors, according to a government official with knowledge of the discussions who asked not to be named as the talks are private. Japanese media reported on the nominations earlier.
Abe is set to reshape the leadership of the BOJ that has adopted his 2 percent inflation target and plans to begin open- ended asset purchases next year. Current Governor Masaaki Shirakawa and two deputies will step aside on March 19.
Japan’s central bank has “really substantial room” for further loosening and additional measures could be justified this year, Kuroda said in a Feb. 11 interview. Former BOJ Deputy Governor Kazumasa Iwata and Kuroda were seen as leading candidates to head the bank, the Mainichi newspaper said last week without citing anyone.
“While it is well known that Kazumasa Iwata is the most yen-negative governor candidate, a combination of Governor candidate Haruhiko Kuroda and Deputy Governor candidate Kikuo Iwata would be just as yen-negative,” Citigroup Inc. analysts wrote in a report dated Feb. 22.
Pound Shorts
Chief Cabinet Secretary Yoshihide Suga said today Abe will present nominees to parliament this week, though a final decision hasn’t been made.
Futures traders increased bets that the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a decline compared with those on a gain -- so-called net shorts -- was 65,891 on Feb. 19, compared with shorts of 61,306 a week earlier. Wagers on a drop in the pound rose to 23,365 compared with net shorts of 16,776 a week earlier.
The pound slid against the dollar for a second day after Moody’s lowered the rating on the U.K. by one level to Aa1 from Aaa. It cited weakness in the nation’s growth outlook and challenges to the government’s fiscal consolidation program, according to a Feb. 22 statement.
“Investors should not be surprised if the other major rating agencies make good on their negative outlooks for the U.K.,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a note to clients.
Italy’s Elections
The pound fell 0.2 percent to $1.5131 after touching $1.5073, the least since July 2010. Sterling weakened 0.4 percent to 87.33 pence per euro after reaching 87.75, the weakest since October 2011.
Demand for the euro was damped before the results of Italian elections. Initial estimates will be released by pollsters shortly after voting stations close at 3 p.m. in Rome. The Interior Ministry will start its count with the Senate today and then move on to the Chamber of Deputies.
“A coalition government will probably need to be formed, which could take a week or more,” Sharon Zollner, senior economist at ANZ Bank New Zealand Ltd. in Wellington, wrote in a report today. “The resultant uncertainty would weigh on sentiment.”
Bernanke Testimony
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, was little changed at 81.508 after reaching 81.642, the highest since Sept. 5.
Federal Reserve Chairman Ben Bernanke will deliver his semiannual testimony on monetary policy to the Senate Banking Committee tomorrow, and a day later will speak before the House Financial Services Committee. Bernanke said on Feb. 15 that the economy is “far from the fully healthy and vibrant conditions that we would like to see.”
The Australian dollar sank against all its major peers except the yen after a private gauge indicated China’s manufacturing may expand at a slower pace this month. China is Australia’s biggest trading partner.
The preliminary reading of a Purchasing Managers’ Index was at 50.4 in February, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 52.3 final reading for January and the 52.2 median estimate of analysts surveyed by Bloomberg News. A number above 50 indicates expansion.
The so-called Aussie fell 0.4 percent to $1.0278.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
