The dollar and euro notched their largest daily percentage gains against the yen since late 2008 on Thursday after the Bank of Japan surprised markets with an ambitious plan to fight deflation in a radical overhaul of policy. The dollar rose more than 3 percent and the euro more than 4 percent versus the yen after the BoJ unleashed the world's most intense burst of monetary stimulus, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent its bond yields to record lows.
Governor Haruhiko Kuroda, chairing his first policy meeting, committed the BoJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014. "This is not your grandfather's BoJ," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York. The dollar rose as high as 96.41 yen on Reuters data, near a 3-1/2-year peak of 96.71 set on March 12. It was last trading at 96.14 yen, up 3.3 percent on the day and on track for its best day since October 2008. The euro soared as high as 124.48 yen and last traded at 124.38, up 4.1 percent on the day, marking its biggest one-day move since November 2008.
In the options market, three-month dollar/yen risk reversals, a broad gauge of currency market sentiment, remained biased toward puts, the right to sell dollars at a future date, but demand stood at its lowest level since March 11. "The BoJ announcement was more aggressive than almost anybody had expected," said Jens Nordvig, global head of FX strategy at Nomura Securities in New York.
The anticipation of long-dated Japanese government bond purchases has already caused the Japanese yield curve to collapse. Nomura Securities said given the weaker US growth momentum lately, the dollar may not be the best currency to express yen weakness. Instead, the firm said it's buying the Australian dollar against the yen, targeting a move to 105 in two to three months.
The BoJ's new plan means it will buy about 7 trillion yen ($73 billion) of bonds per month, equivalent to about 1.4 percent of gross domestic product. By comparison, the US Federal Reserve is buying $85 billion of bonds per month, about 0.6 percent the size of the economy. Kuroda also said he would not hesitate to adjust policy further. The yen also weakened against other currencies, with the Australian dollar rising above 100 yen for the first time since 2008.
The yen's direction in the near-term will depend on the US nonfarm payrolls report, due on Friday. Employers likely added 200,000 jobs to their payrolls last month and the unemployment rate is seen steady at a four-year low of 7.7 percent, according to a Reuters poll. The euro rose as high as $1.2949, its highest since March 25. It last traded up 0.7 percent at $1.2934, according to Reuters data.
