Yen Drops for Fifth Week on Post-Election Stimulus Speculation

The yen slumped for a fifth week against the dollar, the longest streak since March, before Japanese opposition leader Shinzo Abe, an advocate of unlimited monetary stimulus, is projected to win weekend elections.

The 17-nation euro gained against all of its major peers after European Union finance ministers agreed to put the European Central Bank in charge of the area’s lenders. The dollar fell against the majority of its most-traded peers as the Federal Reserve said it will buy an additional $45 billion of Treasuries a month, which may debase the currency. The Japanese currency reached an almost nine-month low as the Bank of Japan (8301) said its Tankan index for large companies fell to its lowest level since March 2010. Japan’s election is tomorrow.

“The yen weakness is clearly a reflection of expectations for additional political pressure on the Bank of Japan following this weekend’s election,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said yesterday in a telephone interview. “We’ve seen the yen depreciate so rapidly against the dollar for the last month that it’s ripe for some profit-taking.”

The yen fell 1.3 percent this week to 83.52 per dollar in New York, completing the longest stretch of declines since the period ended March 16. It reached its lowest level since March 21. The Japanese currency decreased 3 percent to 109.90 per euro after falling to its weakest level since April. The euro added 1.8 percent to $1.3163, reaching the strongest level since May 4. ‘

Franc, Real

The Swiss franc was the second-biggest winner among its 16 most-traded peers this week, lagging behind just the euro, climbing 1.8 percent to 91.78 centimes per dollar. Brazil’s real was the second-worst performer behind the yen, declining 0.5 percent to 2.0860 per dollar.

Net-wagers the Australian dollar will rise against the greenback increased to a record 103,376 contracts last week, while speculators also pushed net-longs for the Mexican peso to an all-time high 149,271 contracts, according to Commodity Futures Trading Commission data.

Futures traders added to bets the yen will fall against the dollar in the week ended Dec. 4, pushing net-shorts to 94,401, the most since 2007

Japan’s currency has fallen 11.6 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 3.1 percent. The euro has declined 1.4 percent, while the New Zealand dollar has been the best performer, rising 6.5 percent.

Fed Policy

The dollar weakened as the Fed tied its policies to economic benchmarks and added to its third round of quantitative easing, matching economists’ forecasts. The U.S. faces a fiscal cliff of $607 billion in automatic spending cuts and tax boosts starting Jan. 1 if lawmakers can’t reach agreement. That would cause the economy to contract 0.5 percent next year, according to the Congressional Budget Office.

“The market tends to have that kind of reaction when an action is perceived as more quantitative easing,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA, said in a Dec. 12 telephone interview.

The Dollar Index, which measures the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, ended the week down 1.1 percent to 79.561, after touching the lowest level since Oct. 22.

Pound Rating

The pound fell versus the euro after Standard & Poor’s lowered the outlook for Britain’s AAA ratings on Dec. 13, citing weak economic growth and a worsening debt profile. The outlook, revised from stable, reflects the view that S&P has a one-in- three chance of lowering the ratings in the next two years, according to a statement from the ratings company.

“Some of the ratings agencies are becoming more concerned that the targets are slipping,” Ned Rumpeltin, head of Group of 10 currency strategy at Standard Chartered Group Plc in London, said in a Dec. 13 interview. “Over the next couple of days, there will be some downside risk for the pound.”

Sterling declined 1 percent to 81.38 pence per euro.

Sweden’s krona fell to its weakest level against the euro in more than five months after data released on Dec. 13 showed consumer prices fell for the first time in three years and unemployment rose, increasing the likelihood that the central bank will lower interest rates next week.

The krona dropped 1.8 percent to 8.7885 per euro, reaching its lowest level since June 28.

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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