The yen fell to its lowest level against the euro since August last year on prospects the Bank of Japan (8301) will expand stimulus at a two-day policy meeting that ends tomorrow, its first since the nation’s general election. Japan’s currency traded near the weakest level since April 2011 versus the dollar after data today showed the country’s trade deficit widened in November. The 17-nation euro extended gains against the dollar to an eighth day and touched a seven- month high amid optimism U.S. lawmakers will reach agreement on the budget and before data forecast to show improvement in German business confidence. “Yen-selling is likely to remain intact,� said Koji Iwata, vice president of foreign-exchange trading in New York at Mizuho Corporate Bank Ltd., a unit of Japan’s third-biggest financial group by market value. “The BOJ will probably disappoint the market if it doesn’t boost asset purchases.� The yen touched 111.78 per euro, the weakest since Aug. 30, 2011, before trading at 111.69 as of 6:30 a.m. in London, 0.3 percent below yesterday’s close. Japan’s currency lost 0.2 percent to 84.35 per dollar, after touching 84.48 on Dec. 17, the lowest since April 12 last year. The euro advanced 0.1 percent to $1.3243 after earlier reaching $1.3256, the most since May 1. Seventeen of 21 analysts surveyed by Bloomberg News expect the BOJ to ease monetary policy at its policy meeting. Incoming Prime Minister Shinzo Abe, whose Liberal Democratic Party swept to victory in elections for the lower house of Japan’s Parliament on Dec. 16, said yesterday that he requested BOJ Governor Masaaki Shirakawa agree to an accord containing a 2 percent inflation target. Abe has called for unlimited easing by the BOJ to defeat deflation and revive growth. Trade Deficit Japan’s exports fell 4.1 percent last month from a year earlier, leaving a trade deficit of 953.4 billion yen ($11.3 billion), the Finance Ministry said today in Tokyo. Commonwealth Bank of Australia (CBA) lowered its forecasts for the yen today, citing a falling surplus in Japan’s current account, the broadest measure of trade. The Japanese currency will drop to 98 yen per dollar in December next year, Commonwealth Bank strategists Joseph Capurso and Richard Grace wrote in an e-mailed report. That compares with an earlier projection for it to trade at 83. The yen will decline to 129.36 per euro by the end of 2013 compared with an earlier projection of 110.39, according to the bank, which is Australia’s largest by market value. Yen Forecasts A sharp contraction in the current account surplus is a major reason the yen will “weaken substantially further in 2013,� the strategists wrote. The surplus “will remain small, or possibly return to deficit, because Japan’s household savings is likely to keep falling and government budget deficits are likely to remain large.� The yen has lost 13 percent this year, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has weakened 3.3 percent and the euro has dropped 1 percent. Japan’s benchmark Nikkei 225 Stock Average climbed as much as 2.4 percent today, rising above 10,000 for the first time since April, as a weaker yen brightened overseas earnings prospects. The MSCI Asia Pacific Index of shares advanced 1.2 percent. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, touched a two-month low amid speculation a compromise will be reached in U.S. budget negotiations, sapping demand for safer assets. Political leaders in Washington are debating how to avoid the so-called fiscal cliff, more than $600 billion in automatic tax increases and spending cuts that will take effect in January unless Congress acts. ‘Plan B’ House Speaker John Boehner is trying to sell a tax increase for top earners to fellow Republicans. The speaker said yesterday the House will vote this week on a budget “plan B� that would raise tax rates on income of more than $1 million a year, while he continues to negotiate with President Barack Obama. Obama’s administration and other Democrats immediately rejected the proposal as inadequate. The Dollar Index declined as much as 0.2 percent to 79.221, the least since Oct. 18. Europe’s shared currency advanced for an eighth day against the dollar, the longest series of gains since the eight trading sessions ended April 28, 2011. Ifo Survey In Germany, the Munich-based Ifo institute is predicted to say its business climate index rose to 102 this month from 101.4 in November, according to economists surveyed by Bloomberg. An Ifo measure of executives’ expectations may increase to 96.4 from 95.2, while a gauge of the current situation probably slid to 108 from 108.1, surveys showed ahead of the data today. Standard & Poor’s yesterday lifted Greece’s credit rating to B- from selective default, citing the completion of the nation’s distressed debt buyback and the determination of euro- zone member states to preserve its membership in the bloc. The next key test for euro sentiment will come from the Ifo survey, Ray Attrill, the Sydney-based global co-head of currency strategy at National Australia Bank Ltd., wrote in a note to clients today. “Any improvement on the November readings should keep the rally intact.� The New Zealand dollar fell against all of its 16 major counterparts after Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole-milk prices fell for a fourth-straight auction. New Zealand’s currency, known as the kiwi, dropped 0.2 percent to 83.95 U.S. cents. It fell 0.1 percent to 70.79 yen. To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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