BLBG: Yen Slumps the Most in Six Weeks; BOJ Chief Says Economy in ‘Severe’ State
The yen weakened the most in six weeks versus the dollar after Bank of Japan Governor Masaaki Shirakawa said the economy is in a “very severe” state, fueling bets monetary policy may be eased further.
The Japanese currency weakened against its 16 most-actively traded counterparts. The euro gained for a second day against the U.S. currency as European finance officials meeting in Brussels endorsed a bailout for Portugal, boosting confidence that the region’s debt crisis will be contained. The pound climbed as U.K. inflation accelerated more than economists forecast in April to the highest since 2008.
“Long-term investors see more yen weakness ahead,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “Central banks around the world are raising rates, except Japan. There’s potential for more easing-type measures. The market is getting a sense of this.”
The Japanese currency declined 1.1 percent to 81.70 per dollar as of 6:41 a.m. in New York, its steepest depreciation since April 1, based on closing prices compiled by Bloomberg. The yen weakened to 116.14 per euro from 114.37 yesterday. The European common currency rose 0.4 percent to $1.4213.
Japan’s economy has been in a severe situation since the March 11 earthquake and the central bank is committed to ending deflation, Shirakawa told lawmakers in Tokyo today. The government hoped for “flexible” action by the bank to support the economy and will also closely watch the currency, according to a statement approved by Prime Minister Naoto Kan’s Cabinet.
Portugal Bailout
The Japanese currency has slumped 4.6 percent this year, the biggest decline in the Bloomberg Correlation Weighted Indexes, which measure 10 developed-nation currencies. Japan’s main interest rate of zero to 0.1 percent compares with 1.25 percent in the euro area and 4.75 percent in Australia.
Europe’s common currency strengthened for a second day against the dollar.
Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, told reporters in Brussels yesterday that the first tranche of Portugal’s aid package is due by the end of May and a treaty on the European Stability Mechanism will be signed in June.
Ministers for the first time also floated the idea of talks with bondholders over extending Greece’s repayment schedule. Europe would consider “reprofiling” Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Juncker said.
Slow Progress
“Progress is rather slow but we’re going with the assumption that they will find a solution” to the European debt crisis, said Marcus Hettinger, a foreign-exchange strategist at Credit Suisse Group AG in Zurich. “We are also positive on the euro against the yen from an interest-rate perspective.”
The dollar gained versus the yen before a Fed report economists say will show industrial production increased in April for a sixth straight month. The U.S.’s industrial output rose 0.4 percent, after the previous month’s 0.8 percent expansion, according to a Bloomberg survey.
The greenback will advance as the Fed approaches the end of its $600 billion bond-buying program, or so-called quantitative easing, in June, said Gareth Berry, a foreign-exchange strategist at UBS AG in Singapore.
“The risk with the dollar is that we’re coming to the end of QE2 and we think that will be a major event,” he said. “The dollar will rebound.”
Australian Rate Outlook
The pound rose 0.5 percent to $1.6266 and was 0.2 percent stronger at 87.35 pence per euro. Britain’s legal tender bought 132.88 yen, from 130.814 yesterday.
U.K. consumer prices rose 4.5 percent from a year earlier after a 4 percent increase in March, the Office for National Statistics said today in London. The median forecast of 32 economists in a Bloomberg News survey was 4.1 percent. Core inflation accelerated to a record.
Australia’s currency ended four days of losses against the dollar and yen as traders bet that its central bank will raise the benchmark rate by 34 basis points over a year, up from 31 yesterday, according to a Credit Suisse Group AG index based on swaps. The central bank said it may need to raise borrowing costs “at some point” to slow inflation, according to minutes of its May 3 meeting. Governor Glenn Stevens has paused at 4.75 percent after seven increases in the overnight cash rate target from October 2009 to November last year.
“The underlying tone remains the concern about inflation,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “Every dip in the Aussie is a buy into the RBA’s June meet because they are likely to hike rates.”
Australia’s currency rose 0.5 percent to $1.0604 and advanced to 86.53 yen from 85.28 yen yesterday.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
