Yen Near Eight-Week Low Versus Euro as Tankan Boosts BOJ Easing Prospects

The yen was near an eight-week low against the euro on speculation the Bank of Japan will add to monetary easing efforts at its meeting next week to bolster the nation’s recovery.

The yen traded weaker than 84 per dollar after the central bank’s Tankan survey today showed a slowing pace of improvement in business confidence. The dollar was set for a quarterly loss versus all its major peers before data forecast to show U.S. business activity waned, adding to the case for the Federal Reserve to increase debt purchases to support the economy. South Korea’s won rose to a four-month high as the central bank said this year’s current-account surplus may exceed its forecast.

“The economic outlook is deteriorating, as recovery peaks out,” said Junichi Makino, a senior economist at Daiwa Institute of Research Ltd. in Tokyo. “The BOJ is likely to do something such as injecting more capital. That won’t reverse the yen’s uptrend, but should stem excessive gains in the currency.”

The yen was at 113.86 per euro as of 12:03 p.m. in Tokyo from 113.94 in New York yesterday. It earlier reached 114.19 per euro, the weakest level since Aug. 2. The yen was at 83.84 per dollar from 83.87. It touched 83.69 yesterday, the highest level since Sept. 15, when Japan sold its currency to weaken it.

The dollar was at $1.3580 per euro from $1.3585, after trading at $1.3596 yesterday, the weakest since April 15.

Japan Sentiment

The BOJ’s quarterly index of sentiment at Japan’s large manufacturers rose 7 points in September, the smallest improvement since March 2009. The yen remains stronger than the 89.44 per dollar average estimated by large manufacturers for the six months to March 2011 in the report.

“The projected rate was merely revised down to 89.44 even with dollar-yen trading below 85 for most of the survey period,” analysts led by Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co., wrote in an e-mail. “This means that exporters’ hedging operation should still be lagging behind significantly.”

Central bank Governor Masaaki Shirakawa and his board will deliberate policy at an Oct. 4-5 policy meeting. He reiterated this week that the bank stands ready to take action when necessary. They last eased policy by expanding a credit lending program to 30 trillion yen ($357 billion) from 20 trillion yen on Aug. 30.

Global risk aversion this year has driven gains in the yen, which tends to strengthen during economic turmoil as Japan’s trade surplus makes it less reliant on foreign capital. A stronger domestic currency hurts the overseas competitiveness of Japanese companies. The yen reached 82.88 per dollar on Sept. 15, the most since May 1995.

Intervention Amounts

The Ministry of Finance in Tokyo will report tomorrow the amount of yen the central bank sold from Aug. 28 through Sept. 28 to curb appreciation in the currency. Demand for the yen has been tempered amid speculation Japan will sell its currency again after doing so on Sept. 15 for the first time since 2004.

“Investors remain cautious about Japan’s intervention,” said Kazuya Yashiro, currency analyst at Himawari Securities, Inc. in Tokyo. “They are hesitant to sell or buy the dollar- yen.”

The Institute for Supply Management-Chicago Inc. is forecast to report tomorrow that its business barometer fell to 55.7 this month from 56.7 in August, according to the median estimate of economists in a Bloomberg News survey. Figures greater than 50 signal expansion.

“The high probability is the Fed is going to print more money,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “Greenbacks are likely to be dumped.”

Fed’s Lockhart

Federal Reserve Bank of Atlanta President Dennis Lockhart said the debate over whether policy makers should undertake a new round of asset purchases will “intensify” soon.

“In the coming weeks, monetary policy makers must come to grips with the question of whether there is anything they can do to improve the situation in the economy and, if so, what that action should be,” Lockhart said in the text of a speech yesterday in Sewanee, Tennessee. While declining to take a position, he said “this debate will intensify over the coming weeks.”

The dollar depreciated 9.9 percent versus the euro this quarter, the worst performance among the European currency’s 16 major counterparts. The greenback has pared this year’s advance to 5.5 percent.

South Korea’s won climbed for a third-straight day as Bank of Korea official Lee Young Bog said this year’s current-account surplus may exceed the central bank’s forecast.

“At the current pace, the surplus may reach $30 billion by the end of this year,” said Christian Carrillo, head of Asia- Pacific rates strategy at Societe Generale SA in Tokyo. “That implies that the Korean won would likely continue appreciating.”

The won advanced 0.5 percent to 1,140.70 per dollar, after earlier touching 1,140.00, the strongest level since May 14.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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