The yen weakened against most of its major counterparts after the International Monetary Fund said Japan’s currency was overvalued and the central bank should consider further stimulus.
The euro weakened against a majority of its most-traded peers as Spanish and Italian bond yields rose, signaling concern about spreading of contagion of the bloc’s crisis. The New Zealand dollar rose after an industry report showed home prices climbed last month.
“The Japanese rhetoric, the IMF comments, expectations that we’ll have some further policy easing from the Bank of Japan, the main thing it does is shift the safe-haven role more toward the U.S. dollar from the yen,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “It’ll take awhile to digest the Spanish news. We have the looming Greek elections on Sunday, which are seen as a huge element of uncertainty.”
The yen was little changed at 79.45 per dollar at 10:15 a.m. in New York, after falling as much as 0.3 percent. The euro declined 0.3 percent to $1.2451.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 0.2 percent to 82.697 after falling as much as 0.2 percent.
The gauge may decline to a one-month low after it briefly dropped to its 25-day moving average yesterday, according to Gaitame.com Research Institute Ltd., a unit of Japan’s largest currency-margin company.
A decline below the average will signal the start of a correction, with initial support at 80.49, said Takuya Kawabata, a researcher at Gaitame.com in Tokyo. That’s the 61.8 percent retracement of its advance from a May 1 low to a June 1 high, he said, referring to Fibonacci analysis. Support refers to an area where buy orders may be clustered.
The kiwi advanced after the Real Estate Institute of New Zealand Inc. said its index of house prices climbed 1.7 percent in May from the previous month.
New Zealand’s currency gained 0.5 percent to 77.30 U.S. cents.
Japan’s currency strengthened 7.9 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 8.5 percent, while the euro weakened 6.4 percent.
Japan should consider additional monetary stimulus, including buying longer-maturity government bonds and private securities, the IMF said in a report today.
“The exchange rate has appreciated over the past year partly because of safe-haven capital inflows, and our analysis suggests that the yen is moderately overvalued from a medium- term perspective,” the IMF said. Intervention can be used to counter volatile currency movements, David Lipton, the fund’s first deputy managing director, said in Tokyo.
The BOJ, which starts a two-day policy meeting on June 14, refrained from adding to monetary stimulus last month after expanding its asset-purchase program in April. Japanese Finance Minister Jun Azumi earlier this month pledged to take “decisive” action on currencies after the yen climbed to 77.66 per dollar, the strongest since February.
“The IMF’s report clearly has an impact on the yen amid speculation that there will be further easing measures from the Bank of Japan (8301),” said Ian Stannard, head of European currency strategy at Morgan Stanley in London.
The dollar weakened earlier after the Chicago Fed’s Evans said he had been “in favor of pretty much any accommodative policy.”
“More mortgage-backed securities purchases would be good,” Evans said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. Evans doesn’t vote on the policy-setting Federal Open Market Committee this year.
The euro rose earlier against the dollar amid speculation the European Central Bank will resume its bond-buying program to help contain the debt crisis. Spain asked for 100 billion euros ($125 billion) of aid for its banks on June 9.
“Despite the banking package, the market is still wondering what and when the ECB will do something to calm the market tension,” said Jane Foley, a senior currency strategist at Rabobank International in London.
The ECB bought Italian and Spanish government bonds last year, using its Securities Markets Program, to try to stop the debt crisis from spreading to the euro-region’s third- and fourth-biggest economies. The program was put on hold earlier this year after the central bank supplied 1 trillion euros of three-year loans to euro-area banks in December and February.
The yield on 10-year Italian bonds rose 22 basis points, or 0.22 percentage point, to 6.25 percent, after reaching as high as 6.239 percent. The yield on similar-maturity Spanish debt touched 6.78 percent today, a euro-era record.
Greece is scheduled to hold elections on June 17 after a previous vote last month failed to produce a viable governing majority.
To contact the editor responsible for this story: Dave Liedtka at Dliedtka@bloomberg.net