INV: Yen depreciates before Yellen’s speech, BoJ report
iNVEZZ.com, Monday, July 14: The Japanese currency has retreated against all of its 16 major peers on speculation monetary policy would remain loose around the world, which would continue to spur demand for higher-yielding assets.
The yen declined for the first time in three days against the dollar today as the Bank of Japan (BoJ) began a two-day policy meeting. Federal Reserve Chair Janet Yellen is to testify before the Senate Banking Committee in Washington on July 15, and the House Committee on Financial Services the following day. The euro appreciated against the yen on speculation Portugal’s banking woes would be contained.
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“The market is positioned for a dovish message for Chair Yellen, on the back of that we could see sentiment cautiously recovering and the Japanese yen may lose some ground against higher-yielding, risk-correlated currencies,” Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London, told Bloomberg. “Focus this week will be on the BOJ meeting. A somewhat more downbeat assessment of the economic outlook could push the yen lower yet again,” he argued.
The yen dropped 0.15 percent to 101.478 per dollar as of 13:18 BST. It was down 0.36 percent to 138.287 per euro. Europe’s shared currency advanced 0.15 percent to $1.3626.
All economists in a Bloomberg survey forecast the Bank of Japan will maintain the size of its monthly bond-purchases during this week’s meeting.
Philadelphia Fed President Charles Plosser told the New York-based news agency last week the Fed risks losing credibility by waiting too long to introduce an interest rates hike. However, Charles Evans and Dennis Lockhart, his Chicago and Atlanta counterparts, maintained that slow inflation and slack in the labour-market make it appropriate to wait until the second half of 2015 or 2016 before upping the rates.
"Investors are hoping for Yellen to say something substantial. The Fed, it seems, will tolerate a bit more inflation before it will tighten rates," Commerzbank currency strategist Peter Kinsella told Reuters.
In addition to Yellen’s testimony, market participants are also eyeing US earnings and US data on retail sales and housing later this week.
“The situation will likely remain in a standoff for the time being,”Marito Ueda, a director at FX Prime by GMO Corp, told the Wall Street Journal. Ueda expects the yen to trade between 101.20 and 101.80 versus the dollar for the rest of the week.
Japan’s samurai bonds are gaining popularity despite their tight spreads as yields on other types of fixed-income bonds and instruments in the country are even lower. Samurai issuance amounted to $15.08 billion from January to June, the highest amount in six years, according to Reuters’ data.
