Yen Drops Most in 9 Weeks on BOJ Stimulus View, U.S. Economy

The yen fell the most in nine weeks versus the dollar as speculation the Bank of Japan (8301) will boost monetary stimulus sapped demand for the nation’s assets as a haven.

The Japanese currency weakened versus all but one of its 16 most-traded counterparts as U.S. retail sales rose more than forecast in September and housing starts jumped 15 percent. The euro reached its highest level against the greenback in a month after Spain kept its investment-grade credit rating from Moody’s Investors Service, easing concern the region’s debt crisis is worsening. The Federal Reserve is forecast to maintain its bond- buying stimulus plan at its policy meeting Oct. 24.

“The risk-on move throughout markets for the better part of the week was a negative for the yen,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said yesterday in a telephone interview. “We’ve also had increasing speculation that the BOJ is going to ease monetary policy further as early as next month, which is a key negative.”

The yen depreciated 1.1 percent to 79.32 dollar this week, and reaching 79.47, its lowest level since the Aug. 21. The Japanese currency decreased 1.6 percent to 103.28 per euro after touching 104.14, its most depressed level since May 8. The euro added 0.6 percent to $1.3024.

Net Shorts

Futures traders decreased their bets the yen will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 10,086 on Oct. 16, compared with net longs of 12,914 a week earlier.

Wagers the euro will fall against the dollar were 53,495 on Oct. 16, down from 72,570 a week earlier. Net shorts reached a record 214,418 on June 8.

The Swedish krona was the biggest winner among its 16 most- traded peers this week, climbing 1.8 percent to 6.5826 against the dollar. The Canadian dollar was the worst performer, declining 1.4 percent to 99.36 cents per dollar.

The yen has fallen 5.7 percent this year, the most out of its major peers, according to the Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar has been the second-worst performer, losing 2.4 percent. The euro has declined 1.9 percent, while Norway’s krone has been the best performer, rising 3.6 percent.

Yield Gap

Japan’s currency weakened as Treasury two-year yields reached the highest in two months relative to Japanese peers on Oct. 17. U.S. two-year note yields exceeded similar maturity Japanese securities by 18 basis points, or 0.18 percentage point, close to the most since August.

Moody’s said on Oct. 16 that it would keep Spain’s credit rating at Baa3, one step above junk, as the risk that the nation would lose market access had fallen because of the European Central Bank’s willingness to purchase its bonds.

Spain’s 10-year bond yield fell as much as 34 basis points to 5.46 percent on Oct. 17, the lowest since April 4, while Italian 10-year yields declined to the least since March 19. Spanish borrowing costs have dropped more than 2 percentage points from their record high of 7.75 percent on July 25.

“There has been talk about renewed appetite on behalf of Spain to take advantage of the next financial-bailout package,” Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., said in an Oct. 17 telephone interview.

Spain’s Debt

The euro declined against the dollar yesterday after Spanish Prime Minister Mariano Rajoy said his nation doesn’t feel under any pressure to ask for a bailout, fueling concern the debt crisis will be prolonged.

U.S. retail sales increased 1.1 percent in September, while a Bloomberg survey projected a 0.8 percent rise. Housing starts jumped last month to an 872,000 annual rate, the fastest since July 2008 and exceeding all forecasts in a Bloomberg survey of economists,

“Good retail sales should be decent for risk-taking,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in an Oct. 15 telephone interview. “The dollar is getting a little boost. The data is helpful to the U.S. dollar versus yen.”

Gains in risk appetite were tempered as a gauge of manufacturing in the New York region contracted for a third straight month in October.

Fed Policy

The Fed is forecast to retain its policy to hold short-term interest rates close to zero until mid-2015 and buy $40 billion of mortgage-based securities a month until U.S. jobs growth shows sustained improvement.

The Dollar Index, which measures the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, ended the week little changed at 79.626, after touching the lowest level since Sept. 18.

The South African rand reached its strongest level in almost two weeks on Oct. 18 on rising metal prices. Data showed China’s industrial production accelerated in September, which boosted prospects for exports.

The currency declined more than all 16 of its major peers on Oct. 15 after Standard & Poor’s cut South Africa’s credit rating the previous week by one level to BBB with a negative outlook. The ratings company cited concern that a wave of strikes in the nation’s mining industry is placing pressure on government spending.

The rand gained 0.8 percent to 8.6614 per dollar this week. The currency will end the year at 8.34, according to the consensus estimate compiled by Bloomberg.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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