Yen Falls on Speculation BOJ Will Decide to Weaken Currency
Naoto Kan, Japan's prime minister
Haruyoshi Yamaguchi/Bloomberg
Naoto Kan, Japan's prime minister and president of the Democratic Party of Japan.
Naoto Kan, Japan's prime minister and president of the Democratic Party of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg
Aug. 27 (Bloomberg) -- Derek Halpenny, European head of foreign exchange at Bank of Tokyo-Mitsubishi UFJ, talks about Japanese Prime Minister Naoto Kan's comments that he would be willing to take “bold” action on currencies. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Aug. 27 (Bloomberg) -- Lisa Fox, global head of strategy at JapanInvest, discusses Japanese currency policy and the challenge to Japanese Prime Minister Naoto Kan's leadership by Ichiro Ozawa. She talks with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)
The yen dropped versus all its major counterparts on speculation the Bank of Japan will act to curb gains that are imperiling the nation’s export-led recovery.
The Japanese currency slid to one-week lows versus the dollar and euro after the Bank of Japan said it will hold an emergency policy meeting at 9 a.m. Tokyo time. Prime Minister Naoto Kan, who is compiling his own stimulus measures to spur growth, said on Aug. 27 he expects the bank to implement policy “swiftly.” The Australian dollar rose as gains in stocks and commodities boosted demand for currencies linked to growth.
“The BOJ needs to reverse its unwillingness to enact additional credit easing and make it clear that it is fighting against deflation and a strong yen,” said Daisaku Ueno, Tokyo- based president at Gaitame.com Research Institute Ltd., a unit of Japan’s largest currency margin trading company. “The BOJ may need to offer surprises, such as increases in outright purchases of government debt, to bring a definite end to the yen’s advance.”
The yen dropped to 85.87 per dollar as of 11:03 a.m. in Tokyo from 85.22 yen in New York on Aug. 27, after reaching 85.91, the weakest since Aug. 19. The Japanese currency fell to 109.50 per euro from 108.72, after earlier touching 109.56, the least since Aug. 20. The dollar was at $1.2751 per euro from $1.2763 last week.
Shirakawa Returns
BOJ Governor Masaaki Shirakawa returned to Tokyo yesterday from a Federal Reserve symposium in Jackson Hole, Wyoming, a day ahead of his original schedule. Japanese Prime Minister Naoto Kan will meet Shirakawa after the central bank’s extraordinary meeting today, CNBC reported, citing Jiji news service.
Pressure on the bank has been mounting since it kept its key interest rate at 0.1 percent and refrained from expanding credit measures at an Aug. 9-10 meeting. The yen went on to reach 83.60 per dollar last week, the strongest since June 1995.
The Nikkei 225 Stock Average fell 5.9 percent from the BOJ’s last meeting through last week amid signs that global growth is faltering and on concern the yen’s advance will damp the Japanese economy, which expanded last quarter at its slowest pace this year.
The yen tends to gain in times of economic or financial turmoil as Japan’s current-account surplus means it doesn’t need foreign capital. A stronger domestic currency hurts the overseas competitiveness of Japanese exporters and reduces the value of earnings from other countries.
Policy Combination
The Nikkei 225 surged 3.1 percent today, the most since June 3, while yields on benchmark 10-year Japanese government bonds rose as much as 11 basis points, the sharpest climb in almost two years.
“Perhaps it’s a combination that the BOJ boosts JGB purchases at the same time that the government loosens the fiscal taps again, with the aim of the combination of them to support confidence and weaken the yen.” Said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “On the day, we’ll aim for the highs from about two weeks ago, so the 86.40 area. That would be the first target.”
Central banks intervene in foreign-exchange markets by buying or selling currencies to influence exchange rates.
Japan last intervened in March 2004, when the yen was at about 109 per dollar. The Bank of Japan sold 14.8 trillion yen ($173 billion) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. The currency ended the year at 102.63 to the dollar. Japan last bought the currency in 1998.
Risk Sentiment
The Australian and New Zealand dollars advanced as Asian stocks rose.
“While additional easing in Japan will bode well for stocks, we also need to assess if the policy speculation-induced bull run can be sustained and how it will affect risk sentiment as whole,” said Soichiro Mori , chief strategist in Tokyo at FXOnline Japan Co., a margin-trading company.
Australia’s currency rose to 77.47 yen from 76.62 yen in New York on Aug. 27. It climbed 0.4 percent to 90.22 U.S. cents. The New Zealand dollar advanced to 61.23 yen from 60.56 yen. It gained 0.3 percent to 71.31 U.S. cents.
The MSCI Asia Pacific Index of regional shares gained 1.5 percent. Crude oil for October delivery rose as much as 0.6 percent, to $75.58 a barrel, in electronic trading on the New York Mercantile Exchange.
Bernanke, Yields
The dollar’s losses were limited after Fed Chairman Ben S. Bernanke said the central bank has the tools to prevent the U.S. from slipping back into a recession, stopping short of indicating an immediate need for more stimulus.
“The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do,” Bernanke said in a speech on Aug. 27 to central bankers and economists at the Fed’s annual conference in Jackson Hole, detailing choices that include renewed large-scale securities purchases.
The Standard & Poor’s 500 Index gained 1.7 percent on Aug. 27, the biggest increase since Aug. 2, while the yield on the 10-year note had the largest gain since June 2009, increasing 17 basis points. Ten-year yields were little changed at at 2.65 percent today.
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net: Ron Harui in Singapore at rharui@bloomberg.net.
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