BLBG:Yen Drops Versus Euro After Industrial Production; Aussie Falls
The yen fell from the strongest level in two weeks versus the euro after Japan’s industrial production slid by the most in two years, adding weight to the case for the central bank to expand stimulus to spur growth.
The Japanese currency snapped a three-day advance against the dollar as rallies in Asian shares damped demand for haven assets. Australia’s dollar slumped after Reserve Bank Governor Glenn Stevens said the inflation outlook provided room for lower interest rates. The Bloomberg U.S. Dollar Index rose for a second day before the Federal Open Market Committee starts a two-day meeting today. Sweden’s krona fell after a report showed the economy shrank.
“We had very disappointing data for Japan’s industrial production in June and that’s weakened the yen,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “For now the Bank of Japan will wait and see how what they’ve done so far works, but if inflation doesn’t pick up then they might implement some more measures. The yen will weaken further.”
The yen dropped 0.1 percent to 130.07 per euro at 11 a.m. London time. It reached 129.59 yesterday, the strongest since July 15. Japan’s currency was little changed at 98.02 per dollar after appreciating 2.4 percent during the previous three days. The greenback was also little changed, at $1.3267 per euro.
The yen will weaken to 115 per dollar by year-end, Commerzbank’s Karpowitz predicted.
Japanese Production
Japanese industrial production slid 3.3 percent in June, the sharpest decline since March 2011, the Trade Ministry said in Tokyo. The economic expansion will be moderate and some time will be needed before the central bank’s inflation target is reached, Bank of Japan Governor Haruhiko Kuroda said this week.
The MSCI Asia Pacific Index of stocks rose 0.5 percent and Japan’s Nikkei 225 Stock Average advanced 1.5 percent.
“The positive start for the Nikkei was enough to revive risk appetite and trigger yen selling,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo. “The market is expecting the Fed to head towards a stimulus exit before the BOJ” and European Central Bank.
The Australian dollar dropped to a two-week low against the U.S. currency after Stevens said there were signs of previous interest-rate cuts working, “though not, to date, by so much that we see a serious impediment to further easing.”
The Australian currency also extended declines for a second day after government figures showed an unexpected slide in building approvals.
Aussie ‘Dive’
“The Aussie’s taken a dive,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The key comment really is that rate cuts are working, but it’s no impediment to further easing if needed and that a further Aussie decline won’t be a surprise,” Trinh said in reference to Stevens’s speech.
The Aussie declined 1.5 percent to 90.62 U.S. cents after declining to 90.53 cents, the weakest level since July 15.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.2 percent to 1,025.76 after dropping to 1,021.21 yesterday, the lowest since June 19.
Investors have trimmed bets of an early end to the Fed’s program of quantitative easing, which had increased after Chairman Ben S. Bernanke said on June 19 that policy makers would taper their $85 billion in monthly bond purchases this year and end it around mid-2014 if the economy performed in line with their expectations.
Fed Tapering
Bernanke told lawmakers on July 17 that the central bank’s asset purchases “are by no means on a preset course,” and could be reduced or expanded as economic conditions warrant.
“It’s hard to imagine the FOMC having any substantial discussion on tapering this time around,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “Policy makers will probably emphasize that the labor market is still weak.”
Sweden’s krona depreciated against all but one of its 16 major peers after data showed the nation’s economy unexpectedly shrank in the second quarter.
Gross domestic product contracted 0.1 percent in the three months through June, after growing 0.6 percent in the prior quarter, preliminary data from Stockholm-based Statistics Sweden showed. The economy was forecast to expand 0.1 percent by a Bloomberg survey of 12 economists before the report.
The krona depreciated 1 percent to 8.6798 per euro and fell 1 percent to 6.5432 per dollar.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net.
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
