BLBG:Yen Drops to 2010 Low on Stimulus Bets, Deficit Concern
The yen touched the weakest level since June 2010 against the dollar on speculation the Bank of Japan (8301) will cooperate with Prime Minister Shinzo Abe’s government to ramp up efforts to stimulate the economy.
Japan’s currency headed for a ninth week of declines as the Cabinet approved 10.3 trillion yen ($116 billion) of fiscal stimulus after the nation posted wider-than-expected current account and trade deficits. The euro held the biggest gain in five months against the greenback from yesterday before a report that may show the region’s industrial output increased.
“The yen is being sold after the current account data,” said Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo. “The yen is vulnerable to negative headlines as the selling pressure is gathering momentum.”
The yen touched 89.35 per greenback, the weakest since June 29, 2010, before trading at 89.08 at 2:58 p.m. in Tokyo, 0.3 percent lower than yesterday’s close. It’s poised to complete a ninth week of losses, the longest losing streak since 1989.
The Japanese currency depreciated 0.3 percent to 118.14 per euro, after earlier dropping to 118.59, the lowest since May 2011. Europe’s shared currency was little changed at $1.3263 from $1.3272 yesterday, when it rose 1.6 percent, the biggest jump since Aug. 3.
Japan’s currency slid versus 14 of its 16 most-traded peers as Abe called for “bold” BOJ policy to fight deflation and the strong yen. The central bank may raise an October projection for an 0.8 percent increase in consumer prices excluding fresh food at its Jan. 21-22 meeting, according to people familiar with officials’ discussions, who spoke on condition of anonymity because the talks are private.
Extra Spending
The government will spend 10.3 trillion yen to drive a recovery from a recession. Around 3.8 trillion will be for disaster prevention and reconstruction, and 3.1 trillion yen directed to stimulating private investment and other measures, according to a Cabinet Office statement today.
“The expectation of monetary and fiscal stimulus under the Abe administration has been driving yen weakness,” said Kikuko Takeda, a senior currency economist in London at Bank of Tokyo- Mitsubishi UFJ Ltd. “It’s no surprise that the currency has been weakening in an environment where Japan continues to post trade deficits.”
The nation’s current account swung to a 222.4 billion yen deficit in November from a 376.9 billion yen surplus the previous month, Finance Ministry data showed today. The median estimate of economists in a Bloomberg News survey was for a 17.1 billion shortfall.
Trade Deficit
Japanese imports exceeded exports by 847.5 billion yen in November, wider than the 450.3 billion yen gap for October and the 832 billion yen projected by economists polled by Bloomberg.
Analysts at firms including Morgan Stanley, Societe Generale SA and Citibank Inc. lowered their yen forecasts.
Morgan Stanley said in a report the currency may weaken to 100 yen to the dollar by the fourth quarter, versus an earlier estimate of 90. Societe Generale said the yen may depreciate to 97 by year-end, changing its projection from 87 yen. Citibank said the currency may decline by the end of March to 90 to the dollar, from an earlier forecast of 87.
Losses in the Japanese currency were limited as its 14-day relative strength index against the greenback dropped to 22, below the 30 level which indicate an asset’s price has fallen too rapidly and may be poised to reverse course. The yen’s RSI against the euro was at 25 today.
Worst Performer
The yen’s 2 percent drop in the past week was the biggest among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar lost 0.8 percent in the same period, while the euro rose 0.8 percent.
The 17-nation currency was supported after the European Central Bank left its main refinancing rate at a record low of 0.75 percent at a meeting yesterday in Frankfurt, as President Mario Draghi said the economy should regain momentum.
Economists surveyed by Bloomberg forecast euro-area industrial production rose 0.3 percent in November from the previous month when it fell 1.4 percent. The European Union’s statistics office releases the data on Jan. 14.
“The ECB’s statement was neutral and didn’t signal any future rate cuts,” said Bank of Tokyo Mitsubishi UFJ’s Takeda. “They remain cautious on the economy. Further gains in the euro may be limited from here.”
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
