BLBG:Yen Falls as King Says Currencies Must Be Flexible; Pound Drops
The yen approached the weakest level since May 2010 against the dollar after Bank of England Governor Mervyn King said currencies should be allowed to fluctuate based on monetary-stimulus measures.
The yen fell versus all except one of its 16 major counterparts as King’s comments allayed concern the Group of 20 meeting this week would criticize Japan for introducing stimulus measures that tend to weaken its currency. The pound slumped after the Bank of England said risks to the U.K.’s economic recovery were weighted to the downside. Sweden’s krona rallied after the central bank kept interest rates unchanged. The euro rose after a report showed industrial production increased.
“King is pointing out that if there is an impact on foreign-exchange rates from policy moves designed to support growth, then so be it,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The yen is weakening today. King, it seems, did not want to point the finger at Japan.”
The yen depreciated 0.2 percent to 93.70 per dollar as of 7:05 a.m. in New York after sliding to 94.46 on Feb. 11, the weakest level since May 5, 2010. Japan’s currency declined 0.5 percent to 126.43 per euro after reaching 127.71 on Feb. 6, the least since April 2010. The euro rose 0.3 percent to $1.3490.
Japan’s currency has tumbled 18 percent in the past three months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 1.7 percent and the euro rose 5.1 percent.
“When countries take measures to use monetary stimulus to support growth in their economy, then there will be exchange- rate consequences and they should be allowed to flow through,” King said at a press conference in London. “It’s very important to allow exchange rates to move.”
Position Challenged
Group of Seven finance ministers and central-bank governors released a statement yesterday that appeared to signal acceptance for a weaker yen, so long as Japanese Prime Minister Shinzo Abe’s government doesn’t actively pursue devaluation.
This position was later challenged when an unidentified official from a G-7 nation issued a clarification saying the group was concerned about excessive moves in the yen and Japan’s practice of giving guidance on its value.
Finance ministers and central bankers from the G-20, which includes the G-7 and emerging markets such as Brazil, China and India, meet in Moscow on Feb. 15-16.
The Bank of Japan announces its monetary-policy decision tomorrow following a two-day meeting. Governor Masaaki Shirakawa said last week he will step down with two of his deputies on March 19, about three weeks before his term is due to end.
Pound Slides
The pound fell for a third day against the euro as King said in a press conference that while policy makers will add to stimulus if needed, there are “limits” to what it can achieve.
The Bank of England said in its quarterly Inflation Report released today that the outlook for inflation was higher than it forecast in November because of a weaker pound and higher energy bills. It also said weak productivity was adding to domestic cost pressures.
“King’s saying it’s going to be a rocky road and policy makers will do more if necessary,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “People are looking at the gloomy side. So far this year the market has taken any opportunity it can get to sell the pound. There are still a lot of sellers.”
The pound slid 0.9 percent to 86.64 pence per euro after dropping to 87.17 pence on Feb. 1, the lowest level since October 2011. Sterling fell 0.6 percent to $1.5570.
Krona Gains
Sweden’s krona rose to a four-month high against the euro after the Riksbank left its benchmark interest rate on hold amid optimism the region’s debt crisis is easing.
“Growth in the Swedish economy is still weak and inflationary pressures are low,” the central bank said. “But there are some positive signs pointing towards stabilization and strengthening in economic activity over the year.”
The seven-day repo rate was kept at 1 percent, the Stockholm-based bank said. The decision was predicted by 13 of 22 economist surveyed by Bloomberg News, with the rest forecasting a cut.
The krona rose 1.1 percent to 8.4709 per euro after appreciating to 8.4707, the strongest level since Oct. 1.
The euro advanced after the European Union’s statistics office said industrial production in the currency bloc increased 0.7 percent in December from the previous month, when it fell a revised 0.7 percent. Economists forecast a gain of 0.2 percent, according to a Bloomberg News survey.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
