BLBG:Yen Weakens Versus Dollar Amid Tax-Cut Speculation; Kiwi Gains
The yen weakened for the first time in five days against the dollar as speculation Japan’s government will cut corporate taxes spurred stock gains and damped demand for the relative safety of the currency.
The yen dropped against all its 16 major counterparts as shares rallied on bets the tax cut will make companies more profitable. New Zealand’s dollar strengthened amid bets the country’s central bank will be the first among developed nations to raise interest rates. The pound weakened against the dollar after a government report showed annual economic growth was less than earlier estimated.
“Yen was hit by the fact there’s talk of a tax cut,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “It’s prompted people to think about the fiscal stance a little more. It is seen as another positive for Abenomics. Whenever it’s seen as a risk-on thing people sell the yen.” Abenomics refers to the economic policy of Japanese Prime Minister Shinzo Abe.
The yen declined 0.2 percent to 98.65 per dollar as of 7:14 a.m. London time after declining to 100.61 on Sept. 11, the weakest since July 22. Japan’s currency was little changed at 133.21 per euro after depreciating as much as 0.8 percent. The dollar strengthened 0.2 percent to $1.3502 per euro.
Abe’s government will pledge to promptly begin a study on reducing the corporation tax, Kyodo News reported, without citing anyone. The Prime Minister will announce an economic stimulus package on Oct. 1 at the same time as his decision on whether to raise the country’s sales tax, ruling Liberal Democratic Party tax panel chief Takeshi Noda said today.
Yen’s Decline
The yen has dropped 4.2 percent in the past three months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar weakened 3.2 percent, while the euro rose 0.8 percent.
The Nikkei 225 Stock Average (NKY) closed up 1.2 percent after erasing a decline of 1.4 percent.
“The yen is weaker today in part because of the announcement from Japan suggesting the corporate tax rate will decline and negate the negative impact of the consumption tax hike,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “It’s good for equities as it means a looser fiscal policy and meanwhile a loose monetary policy remains. A strong correlation exists between the Nikkei and dollar-yen.”
Pension Fund
A panel advising Japan’s 121 trillion yen Government Pension Investment Fund said in a report today that the government should review its portfolio, which is centered on domestic bonds. Some panel members recommended adding new assets, which may include infrastructure and private-equity investments, commodities or real estate.
The New Zealand dollar snapped a two-day decline against the greenback as Asian stocks advanced, underpinning demand for higher-yielding currencies.
“Everybody’s forgotten that the Reserve Bank of New Zealand is one of the most hawkish central banks out there,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “I’m not surprised that the kiwi has picked up a little bit. I think it’s got more to do.”
New Zealand’s currency jumped 0.6 percent to 82.91 U.S. cents after dropping to 82.17 cents yesterday, the lowest level since Sept. 18.
Pound Falls
The pound dropped versus 13 of its 16 major counterparts after a separate government report showed Britain’s current-account deficit increased in the first quarter to the widest since at least 1955.
Britain’s gross domestic product increased 1.3 percent in the second quarter from a year earlier, the Office for National Statistics said in London, compared with an initial reading of 1.5 percent.
“Growth numbers came in a bit softer year-on-year and what really sticks out is the current-account data,” said Ned Rumpeltin, head of Group-of-10 currency strategy at Standard Chartered Bank in London. “The market went into these numbers long and a little bit complacent so we’re seeing reaction in positioning.” A long position is a bet an asset will rise.
The pound dropped 0.2 percent to $1.6053 after climbing to $1.6096, the highest level since Sept. 19. The U.K. currency was little changed at 84.09 pence per euro.
The dollar rose against the yen and euro before a report that analysts said will show the U.S. economy expanded in the second quarter.
U.S. gross domestic product grew an annualized 2.6 percent, according to the median estimate of analysts surveyed by Bloomberg News, compared with an earlier reading of 2.5 percent.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
