BLBG:Yen Extends Drop Past 101 Per Dollar After Bonds Data
The yen weakened beyond 101 per dollar for the first time since April 2009 after a government report showed Japanese investors boosted holdings of overseas bonds, ending the longest streak of sales since January 2010.
Japan’s currency fell against all of 16 major counterparts as the data boosted speculation stimulus measures spearheaded by Bank of Japan Governor Haruhiko Kuroda and Prime Minister Shinzo Abe are driving local investors to seek higher returns overseas. Switzerland’s franc, also seen as a haven, dropped to a three-month low against the euro. The Australian dollar fell toward parity with its U.S. peer after the Reserve Bank this week cut interest rates to a record.
“There are still big potential buyers of dollars, sellers of yen in the market so the market is still set up for another leg,” said Jonathan Webb, head of foreign-exchange strategy at Jefferies Bache Ltd., a unit of Jefferies International Ltd. in London. “We think we’re heading to 103 to 105 in the next month or so.”
The yen slumped 1 percent to 101.60 per dollar as of 6:58 a.m. New York time after depreciating to 101.66, the weakest level since Oct. 21, 2008. Japan’s currency slid 0.5 percent to 131.88 per euro after reaching 132.16, the least since January 2010. The euro dropped 0.3 percent to $1.3004.
For the week, the yen has tumbled 2.5 percent against the dollar, the most since the period ended April 5. Japan’s currency has fallen 1.6 percent versus the euro.
Overseas Bonds
Japanese investors boosted holdings of overseas bonds in each of the previous two weeks, following six weeks of sales, Ministry of Finance data showed today. Investors bought a net 309.9 billion yen of foreign bonds in the five days through May 3, and 204.4 billion yen the previous week.
“Japanese investors buying foreign bonds means they are seeking higher yields abroad as yields in domestic bonds are too low,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo. “That’s a sign that Kuroda’s monetary easing and Abenomics are working. This also signals further weakening in the yen.”
The extra yield offered by U.S. 10-year Treasuries instead of similar-maturity Japanese bonds expanded to 1.22 percentage points yesterday, the most since April 8, according to data compiled by Bloomberg based on closing prices.
The yen has dropped 4.9 percent against the greenback since April 4 when Kuroda exceeded economist forecasts by pledging to double monthly bond purchases and buy longer-term debt to reach a 2 percent annual inflation goal. He said it’s natural for a currency to weaken in response to monetary stimulus.
Final Slide
The yen began its final slide toward 100 per dollar yesterday after the U.S. Labor Department reported claims for unemployment insurance unexpectedly dropped to a five-year low last week. That spurred bets the Federal Reserve will curtail stimulus earlier than previously anticipated.
The yen has tumbled 22 percent in the past six months, the biggest decline among 10 major currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar gained 1.6 percent and the euro strengthened 4.2 percent.
The franc fell to the lowest level since January against the euro as the U.S. jobless claims data damped demand for the safest assets.
“The macro data, especially the U.S. jobs market, have gotten better,” said Alessandro Bee, an economist at Bank Sarasin & Cie AG in Zurich. “It’s an environment where people want risk, the stock markets are doing well, and that’s a situation when you sell safe assets like the franc.”
Franc Falls
The franc fell 0.5 percent to 1.2428 per euro after declining to 1.2461, the weakest since Jan. 30. The Swiss National Bank (SNBN) set a cap of 1.20 per euro on the franc in September 2011 to ward off deflation and a recession.
South Korea’s won dropped the most in three months against the dollar on speculation policy makers will favor depreciation to support exporters as the yen’s decline makes Japanese rivals more competitive.
South Korea’s Finance Minister Hyun Oh Seok said last month the weakening yen is having a “considerable impact” on the nation’s economy that’s larger than threats from North Korea.
“With the yen’s weakness, there’s generally downward pressure on the regional currencies,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “Intervention is possible in some countries where their currency has been rising.”
The won tumbled 1.4 percent to close at 1,106.39 per dollar in Seoul, the biggest decline since Jan. 28.
Aussie Weakens
The Australian dollar dropped to about 0.2 percent of parity with its U.S. counterpart after the central bank lowered its inflation forecast following an interest-rate cut this week.
The so-called Aussie headed for its biggest weekly decline since November 2011 versus the greenback as the Reserve Bank of Australia lowered its benchmark to a record 2.75 percent on May 7 and cited unusual strength in the currency.
“The RBA will continue cutting the cash rate into early next year down to 2 percent, diminishing the interest-rate support for the currency,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC) “If it stays below $1.01, that augurs very poorly for the Aussie and it can fall as far as 99 U.S. cents.”
The Australian dollar declined 0.6 percent to $1.0033 after dropping to $1.0022, the least since June 29.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
