BLBG: Yen Weakens a Third Day as BOJ Maintains Easing; Kiwi Advances
The yen fell for a third day against the dollar as Japan’s two- and five-year bond yields dropped to records after the Bank of Japan maintained unprecedented stimulus.
Japan’s currency slid at least 0.2 percent versus all 16 major counterparts as a rally in Asian stocks sapped demand for safety. The New Zealand dollar strengthened for a second day after China, the nation’s largest trading partner, revised up the size of its economy. The U.S. currency headed for a weekly gain on the outlook for higher interest rates. A measure of foreign-exchange volatility headed for a fourth week of gains.
“If you look at the scale of BOJ easing against a normalization of Federal Reserve policy and a rate-hiking cycle, it stands to reason that dollar-yen should trade at significantly higher levels,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “I won’t be surprised to see us trading toward 125-127 over the course of the first six months of next year.”
The yen depreciated 0.5 percent to 119.38 per dollar as of 10:18 a.m. in London after weakening 2 percent during the previous two days. Japan’s currency declined 0.4 percent to 146.62 per euro. The dollar was little changed at $1.2283 per euro.
Japan’s two-year yield dropped to minus 0.04 percent while that on five-year bonds fell to a record 0.03 percent.
BOJ Policy
The BOJ will boost its monetary base at an annual pace of 80 trillion yen ($670 billion), it said in a statement after a meeting in Tokyo, a decision forecast by all 33 economists surveyed by Bloomberg News. The economy is expected to continue a moderate recovery as the effects of an April sales-tax increase dissipate, the BOJ said.
The yen has slumped about 8.5 percent against the dollar since Oct. 30, the day before the central bank unexpectedly boosted stimulus to try to help the economy emerge from recession.
“A central bank that seems very willing to turn a blind eye to the potential negative implications of a rapid depreciation in the yen, that to me is a recipe for 130” per dollar in the second half of 2015, said Robert Rennie, head of currency and commodity strategy at Westpac Banking Corp. in Sydney. “Financial markets are trying to sound the all clear,” reducing demand for the yen as a haven.
The currency also weakened today as the MSCI Asia Pacific Index (MXAP) of shares gained 1.7 percent.
Kiwi Climbs
New Zealand’s dollar rose 0.1 percent to 77.70 U.S. cents as the results of a Chinese nationwide economic census showed gross domestic product of the world’s second-largest economy was 58.8 trillion yuan ($9.45 trillion) in 2013. That’s 3.4 percent larger than the previously reported figure.
A gauge of the U.S. dollar headed for its eighth weekly gain in the past nine weeks after the Federal Reserve signaled at its Dec. 16-17 policy meeting that it was on course to raise interest rates next year.
Talking to reporters after the meeting, Fed Chair Janet Yellen laid out the economic parameters that would need to be met for liftoff to begin later in the year and said rates probably would be raised gradually thereafter.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.1 percent to 1,123.11, set for a 0.7 percent gain this week.
The dollar has strengthened 12 percent in 2014, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 1.4 percent and the yen weakened 2.8 percent.
JPMorgan Chase & Co.’s Global FX Volatility Index is set to end the week 29 basis points, or 0.29 percentage point, higher at 9.95 percent, having touched 10.12 percent yesterday, the highest since September 2013. It has risen from a record-low 5.28 percent set in July.
“Volatility for currency markets continues to rise,” said Camilla Sutton, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. “We’re seeing large flows pushing around the major currencies less on fundamentals and more on liquidity and risk aversion.”
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Eshe Nelson in London at enelson32@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Todd White
