LM:Yen drops to lowest against dollar since Oct 2008
The yen fell to a five-year low versus the dollar as the difference in yield between Treasuries and Japanese bonds approached the widest level since April 2011.
Japan’s currency headed for a seventh weekly drop against its peer before the Federal Reserve and the Bank of Japan hold policy meetings next week. The yen also touched its lowest in five years versus the euro, set to complete a five-week decline, before European Central Bank vice president Vitor Constancio and executive board members Benoit Coeure and Peter Praet speak on Friday. The Australian dollar headed for its longest stretch of weekly losses since 1985.
“The prospect of Fed tapering, either sooner or later, and continued monetary easing by the Bank of Japan remain a powerful driver of dollar-yen gains specifically, and obviously broad yen trade-weighted depreciation,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “The yen’s level of 103.74 versus the dollar was just a number, and now it’s irrelevant,” he said.
The yen fell 0.4% to 103.74 per dollar as of 6:33 am in London from Thursday, heading for a 0.8% loss this week, after earlier reaching 103.92. Japan’s currency sank 0.3% to 142.62 per euro, on track for a 1.1% weekly decline, after touching 142.83, the weakest since October 2008. The single currency was little changed at $1.3749, trimming gains since 6 December to 0.3 %.
The yen will drop to 110 per dollar at the end of next year, according to Standard Chartered, compared with a median forecast of 108 in a Bloomberg News survey of analysts.
Yield Spreads
The 10-year Treasury yield was little changed at 2.88% from Thursday, when it rose two basis points, according to Bloomberg Bond Trader prices. The yield premium over equivalent Japanese government bonds (JGBs) was at 2.18 percentage points, near the 2 1/2-year high of 2.24 reached on 5 December.
The Fed will probably begin reducing $85 billion in monthly bond buying at the 17-18 December meeting, according to 34% of economists surveyed on 6 December by Bloomberg News, an increase from 17% in an 8 November poll.
“Speculation that the Fed will be ahead of the curve and taper in December is building, boosting the dollar,” said Kumiko Ishikawa, an analyst at Gaitame.com Research Institute Ltd. “While more people are expecting it to happen this month, others are divided between a January and March start to tapering.”
The BOJ, which buys more than 7 trillion yen ($67.4 billion) of JGBs every month in its bid to stoke inflation, starts a two-day meeting on 19 Decemberf. The central bank aims to keep ultra-easy monetary policy in place beyond the two-year timeframe, the Financial Times reported, citing an interview with Governor Haruhiko Kuroda.
Biggest Decliner
The yen has weakened 15% this year, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 4%, while the euro climbed 8.9%, the biggest advance.
The ECB kept its benchmark rate unchanged this month. Vice President Constancio said in a November interview that a negative deposit rate would be invoked only in quite extreme situations and the council is not really near a decision. He will speak on Friday in Tallinn, Estonia.
Stevens Comment
Australia’s dollar headed for an eight-week loss as Reserve Bank Governor Glenn Stevens signaled a weaker currency is preferable over lower interest rates. It touched a more-than- three month low of 89.14 US cents after he said 85 cents ‘‘would be closer to the mark than 95 cents,” in an interview in the Australian Financial Review on Friday.
‘‘The RBA appears to have made a strategic decision in mid- October that they could get the Aussie down and they should try and get it lower as they downgraded their view of the resource sector,” said Greg Gibbs, a Singapore-based strategist at Royal Bank of Scotland Group Plc.
Australia’s dollar traded at 89.23 US cents, and was on course for a 2 percent weekly decline. Bloomberg
