BLBG:Yen Tumbles Most in 17 Months as BOJ Doubles Stimulus
The yen slumped the most in 17 months against the dollar after the Bank of Japan (8301) announced larger-than-expected economic stimulus measures that tend to devalue the currency.
The yen slid at least 1.8 percent versus all of its 16 major counterparts as BOJ Governor Haruhiko Kuroda and his peers doubled monthly bond purchases and adopted a two-year time horizon to achieve their 2 percent annual inflation goal. The euro fell against the dollar as European Central Bank officials gather today for a policy meeting that economists said will leave interest rates at a record low. The pound fell before the Bank of England announces its policy decision.
“The BOJ certainly surprised to the upside of expectations,” said Peter Kinsella, a currency strategist at Commerzbank AG in London. “They’ve done everything that’s required to start a reflation of the economy. It’s very clear the direction is to sell yen and it’s going to weaken further.”
The yen dropped 2.6 percent to 95.43 per dollar at 10:41 a.m. London time after sliding 2.8 percent, its biggest one-day drop since Oct. 31, 2011, when Japan stepped into foreign- exchange markets to weaken the currency for the third time that year.
The yen declined 2.2 percent to 122.14 per euro after reaching 122.71, the weakest level since March 25. Europe’s shared currency lost 0.4 percent to $1.2799.
Commerzbank’s year-end target of 100 yen may be achieved sooner than expected, Kinsella said.
Cap Suspended
Japan’s central bank said it will buy 7 trillion yen of bonds a month, exceeding the median 5.2 trillion yen estimated by economists surveyed by Bloomberg News. BOJ officials also temporarily suspended a cap on some bond holdings and dropped a limit on debt maturities at the two-day meeting, the first to be led by Kuroda since he took office last month.
Expectations for expanded monetary easing under the BOJ’s new leadership have driven the yen down 17 percent in the past six months, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar has risen 3 percent over the same period, while the euro climbed 1 percent.
“The BOJ certainly met and beat market’s expectations,” said Robert Rennie, the chief currency strategist in Sydney at Westpac Banking Corp. (WBC) “Reaching the inflation target in two years would be an objective that will be difficult to achieve, but I think what we have seen from the BOJ nonetheless looks impressive.”
ECB Decision
In Europe, 54 out of 56 economists in a separate survey expect ECB President Mario Draghi and his board to keep euro- area borrowing costs today at 0.75 percent. Two analysts predicted a drop to 0.5 percent.
The euro extended declines after a report based on a survey of purchasing managers by London-based Markit Economics showed euro-area services output declined to 46.4 last month from 47.9 in February. That’s below an initial estimate of 46.5 published on March 21. A reading below 50 indicates contraction.
“The market doesn’t expect a rate cut but I expect Draghi to sound rather dovish,” Commerzbank’s Kinsella said. “Economic data in the euro zone has been dreadful and the PMIs have surprised to the downside.”
The pound dropped 0.4 percent to $1.5069 and was little changed at 84.93 pence per euro.
The Bank of England will keep its asset-purchase target at 375 billion pounds, according to 34 of 37 economists surveyed by Bloomberg News. Three predict an increase to 400 billion pounds.
“The risk from the Bank of England is for a surprise that would weaken sterling,” said Kasper Kirkegaard, a currency strategist at Danske Bank A/S (DANSKE) in Copenhagen. “The consensus is for no change but the market is pricing in some probability it could happen. It makes sense the pound is dropping a bit going into the meeting.”
South Korea’s won slid to the weakest in six months against the dollar as the risk of conflict with North Korea escalated. The won dropped 0.5 percent to 1,123.71 per dollar after touching 1,125.50, the lowest since Sept. 13. The currency slumped 5.3 percent in the past three months.
To contact the reporters on this story: Neal Armstrong in London at narmstrong8@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
