BLBG:Yen Falls on Japan Easing Bets as Silver Leads Commodities Drop
The yen dropped to a more than eight-month low on speculation Japan will expand monetary easing after an election this weekend, spurring an 11-day rally in regional stocks. European shares fluctuated after the U.S. Federal Reserve expanded stimulus, while commodities declined.
The yen reached 83.47 per dollar as of 8:10 a.m. in London, having touched the the weakest since March 21. The Stoxx Europe 600 Index swung between gains and losses as Standard & Poor’s 500 Index futures added 0.1 percent. Japanese exporters led the MSCI Asia Pacific (MXAP) Index 0.3 percent higher, extending the benchmark’s longest winning streak in more than three years. The S&P GSCI gauge of 24 commodities dropped 0.2 percent as spot silver tumbled 1.5 percent.
Japan’s currency slid more than 1 percent this week as polls showed Liberal Democratic Party leader Shinzo Abe, who favours increased economic stimulus, will probably be victorious in elections Dec. 16. The Fed said yesterday it will buy $45 billion of Treasuries per month starting in January. European Union finance ministers agreed to put the central bank in charge of all euro-area lenders in a deal that paves the way for a firewall fund to provide direct bailouts.
“It’s probable enough that expectations for further easing by the BOJ would trigger selling in the yen,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo. “The key is how Abe will act” toward the Bank of Japan (8301) after the election, she said.
Japan’s Nikkei 225 Stock Average climbed 1.7 percent to the highest close since April as the weaker yen lifted exporters like Honda Motor Co. and Canon Inc. (7751) South Korea’s Kospi Index rose 1.4 percent. The Shanghai Composite Index fell 1 percent.
BOJ Easing
The yen weakened at least 0.2 percent against its 16 major peers. Abe, the front-runner to become Japan’s prime minister in elections this weekend, has called for a doubling of the central bank’s inflation goal to 2 percent and unlimited monetary easing to revive growth. The Bank of Japan is due to hold a policy meeting on Dec. 19-20.
The BOJ’s quarterly Tankan survey tomorrow will probably show that sentiment among large manufacturers slid to minus 10 from minus 3 in the third quarter, according to the median estimate of economists in a Bloomberg News survey. That would be the lowest since the first quarter of 2010.
The euro gained 0.1 percent to $1.3082. EU Financial Services Commissioner Michel Barnier said the new supervisor for euro-area lenders should be fully ready by March 1, 2014, with about 200 banks automatically qualifying for direct European Central Bank oversight. In the interim, the 500 billion-euro ($655 billion) European Stability Mechanism could aid banks directly using its own procedures and asking ECB supervisors to step in, he said.
BOK Rates
South Korea’s won rose 0.2 percent to a 15-month high of 1,073.03 per greenback, holding gains after the Bank of Korea held borrowing costs unchanged before next week’s presidential election. The benchmark seven-day repurchase rate was kept at 2.75 percent after 25 basis-point cuts in July and October, the central bank said in a statement in Seoul today.
The Fed’s new program will add to $40 billion a month of mortgage debt it’s currently buying. The Federal Reserve Open Market Committee said asset purchases will continue “if the outlook for the labor market does not improve substantially.”
The central bank for the first time linked the outlook for its main interest rate to unemployment and inflation. Rates will stay low “at least as long” as unemployment remains above 6.5 percent and if inflation is projected to be no more than 2.5 percent, the FOMC said in a statement yesterday.
Bonds Fall
The yield on 30-year U.S. Treasury bonds rose to 2.91 percent, the highest since Nov. 7. Benchmark 10-year yields in Japan rose three basis points to 0.725 percent, while those in Australia climbed to the highest since September.
“The lack of appetite for longer-maturity debt signals investor confidence in the U.S. economic outlook,” said Hideki Shibata, a senior strategist for rates and currencies at Tokai Tokyo Research Center Co.
While the Fed’s announcement sparked a rally in U.S. stocks yesterday, gains were erased after Fed Chairman Ben S. Bernanke said that monetary stimulus can’t fully offset the effect of the so-called fiscal cliff, a term used to describe the over $600 billion of automatic tax increases and budget cuts set to go into effect next year.
U.S. House Speaker John Boehner said yesterday that President Barack Obama’s plan can’t pass the House or Senate and “we’ve got some serious differences” on the fiscal cliff.
The S&P GSCI measure of commodities halted a two-day, 0.9 percent advance. Spot silver dropped to $33.0075 an ounce while cash bullion fell to $1,700.50. Gold climbed to the most expensive since Nov. 30 yesterday after the Fed announced its asset-purchase plan. Copper lost 0.6 percent in London.
To contact Bloomberg News staff for this story: Chua Baizhen in Singapore at bchua14@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
