Yen Climbs Before Bank of Japan Meets; Pound Gains for Ninth Day

The yen rose for the first time in three days versus the euro and dollar, even before a meeting tomorrow where the Bank of Japan may boost stimulus measures, after the Federal Reserve said yesterday U.S. borrowing costs will stay at virtually zero through 2014.

The euro remained lower against the yen as Standard & Poor’s cut Spain’s sovereign debt rating to BBB+ from A. The pound gained to its highest level since September versus the greenback after U.K. consumer confidence climbed more than economists estimated. The dollar remained weaker after Fed Chairman Ben S. Bernanke said yesterday the central bank is ready to introduce more stimulus if the economy deteriorates.

“The expectation is that the BOJ will increase the asset purchase program, and the scope for disappointment is helping the yen stay strong,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “You also get the sense that people were expecting a more hawkish Fed, and they didn’t get that.”

The yen gained 0.4 percent to 80.99 per dollar at 5 p.m. New York time and touched 80.67, the strongest level since April 17. It appreciated 0.4 percent against the euro, to 107.07. The U.S. currency was little changed at $1.3219 per euro after reaching $1.3263 earlier, the weakest level since April 3.

S&P lowered its rating on Spanish government bonds by two levels, saying the nation’s budget-deficit trajectory is likely to worsen.

Japan’s currency rose against most of its 16 major counterparts, and Brazil’s real and Norway’s krone were the biggest losers. The real slid 0.3 percent to 1.8856 per dollar, and the krone dropped 0.4 percent to 5.7404 to the greenback.

Stock Gains

The yen stayed higher versus the dollar even after an index of pending U.S. home purchases rose more than forecast, pushing stocks up. The National Association of Realtors’ gauge of the sales increased 4.1 percent in March to the highest level since April 2010. A Bloomberg News survey projected a 1 percent rise. The Standard & Poor’s 500 Index gained 0.7 percent.

Fed policy makers refrained yesterday from new actions to stimulate the economy, while saying the housing sector remains depressed and global financial strains present “significant downside risk.” They repeated their view borrowing costs are likely to remain “exceptionally low” at least through late 2014. The benchmark interest rate has been at zero to 0.25 percent since December 2008.

While they upgraded forecasts for growth this year to 2.4 percent to 2.9 percent, policy makers lowered projections for growth in 2014 to 3.1 percent to 3.6 percent, below a January estimate of 3.3 percent to 4 percent.

“Right now, equities are higher and the dollar is weaker,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York. “That’s consistent with a market that’s still expecting the Fed to do more.”

Prepared for More

Bernanke said yesterday after a two-day Fed policy meeting that central bankers “remain prepared to do more” if economic conditions worsen.

U.S. gross domestic product rose at a 2.5 percent annual rate in the first quarter after advancing 3 percent in the previous three months, according to the median forecast of economists surveyed by Bloomberg News before a report tomorrow.

The Bank of Japan (8301) is due to release new inflation forecasts tomorrow and will probably announce an increase in asset purchases ranging from 5 trillion yen ($62 billion) to 10 trillion yen, economists surveyed by Bloomberg said.

“Yen direction will remain mainly driven by safe-haven demand linked to developments in the euro zone,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London.

Confidence Flags

The euro fell against the yen after the European Commission said in Brussels an index of executive and consumer sentiment in the 17-nation currency area slid to 92.8 in April from a revised 94.5 in March. The median estimate in a Bloomberg survey was for a drop to 94.2 from a previously reported 94.4.

The implied volatility of three-month options for Group of Seven currencies slid to 9.21 percent, the lowest level since 2007, according to the JPMorgan Volatility Index. The 10-year average is 10.6 percent. Lower volatility makes investments in currencies of nations with higher benchmark rates more attractive because the risk in such trades is that market moves will erase profits.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 79.008 after dropping to 78.823, the lowest level since April 3.

The greenback has slid 2.7 percent this year, the second- worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The yen has tumbled 8.1 percent, while the euro has declined 0.5 percent.

Pound Winning Streak

The pound climbed for a ninth day against the dollar, the longest winning streak since January 2011, after a Nationwide Building Society index of sentiment rose to 53 in March from 44 the previous month.

The U.K. currency gained 0.1 percent to $1.6186, after touching $1.6207, the highest level since Sept. 2. It rose 0.1 percent to 81.69 pence per euro.

Sterling may strengthen to $1.6425 if it ends the day’s trading above a key level of resistance, Commerzbank AG said, citing trading patterns.

“Pound-dollar is starting to erode the $1.6167 resistance,” Karen Jones, head of fixed-income, commodity and currency technical analysis in London, wrote in a note to clients. “This is the October 2011 high and the 61.8 percent retracement of the move seen 2011-2012,” she wrote, citing Fibonacci analysis.

Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. Resistance is an area on a chart where orders to sell a security may be clustered.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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