BLBG: Yen Surges to Three-Week High as Japan Stimulus Underwhelms
Currency gains after Prime Minister Abe announces fiscal plan
Measures show ‘policy makers aren’t beating expectations’: RBS
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The Japanese yen appreciated to the strongest level in three weeks against the dollar as extra spending announced by the government amounted to only a small part of a headline number flagged by Prime Minister Shinzo Abe last week.
The currency climbed against all of its 16 major peers after Japan’s government announced 4.6 trillion yen ($45 billion) in extra spending for the current fiscal year, as Abe seeks to bolster the economy without abandoning targets for improving fiscal health. The measures are part of what Abe referred to in a speech last week as a 28 trillion-yen stimulus package. Faltering stock markets also caused investors to shun riskier assets in favor of havens such as the yen.
“The acknowledgment is that the fact the fiscal package is not going to be the panacea to the ills of Japan in terms of emerging from deflation.” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “We are seeing risk appetite moving sharply on the defensive and accordingly we are seeing a flight to safety which will invariably favor a lower dollar-yen.”
The yen appreciated 0.6 percent to 101.77 per dollar at 7 a.m. New York time. It touched 101.46 per dollar earlier, the strongest level since July 11.
BOJ Stimulus
The currency jumped last week as the Bank of Japan enlarged a program of buying exchange-traded funds, while keeping its negative interest rate unchanged and avoiding an increase in raising the target for the monetary base.
“The headlines were 28 trillion yen, but the actual new spending will only be a quarter of that,” said Mansoor Mohi-uddin, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “So another sign following Friday’s BOJ decision, policy makers aren’t beating expectations.”
The yen tracked moves in yields on Japanese 10-year government bonds, which jumped by the most since May 2013 and reached levels last seen in March. This tightened the yield difference, or spread, versus similar-maturity Treasuries to the narrowest since April 2015, further helping strengthen the yen.
“JGB yields have moved back up, that’s providing impetus for dollar-yen to move back lower,” CIBC’s Stretch said. “The path of least resistance is definitely downwards” on dollar-yen, he said.
Yields on Japan’s 10-year bond climbed 8 1/2 basis points to minus 0.06 percent as of the close in Tokyo. The yield earlier reached minus 0.025 percent, the highest since March 16. Benchmark Treasury 10-year note yields rose three basis points to 1.55 percent, leaving the spread at 161 basis points, the least on a closing-price basis since April 2015.
