The yen fell to the weakest level since April 2011 versus the dollar after Shinzo Abe’s Liberal Democratic Party won Japanese elections yesterday, giving him a mandate to act on pledges of expanded monetary stimulus.
Japan’s currency declined as Abe has called for the central bank to double its inflation goal to 2 percent and undertake unlimited easing to revive economic growth. Bank of Japan (8301) policy makers meet on Dec. 19-20. Brazil’s real fell as economists cut growth forecasts for the nation.
“The yen’s weakness may reach a floor pretty soon, as the yen’s decline starts to reach 10 percent since October,” said Ravi Bharadwaj, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU) “87, which is still a ways away, is where we see this move ending.”
The yen fell 0.4 percent to 83.89 per dollar at 5 p.m. New York time, after depreciating to the weakest since April 12, 2011. Japan’s currency dropped 0.5 percent to 110.43 per euro, after declining to the least since March 21. The euro was little changed at $1.3164.
Japan’s currency has lost 12 percent this year, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after New Zealand’s dollar. The dollar is off 3.2 percent while the euro has dropped 1.5 percent. For the past month, the yen is down 5.6 percent, the greenback fell 2.3 percent and the shared currency is up 1.3 percent.
Brazil’s real declined against all its major counterparts, falling 0.7 percent 2.0996 per dollar. About 100 analysts in a weekly central bank survey cut 2013 growth forecasts to 3.4 percent from 3.5 percent a week earlier.
The Dollar Index, which tracks the greenback against the currencies of six major trading partners, was little changed at 79.560 and touched the least since Oct. 22, as Treasuries fell. Yields on the 10-year benchmark rose seven basis points, or 0.07 percentage point, to 1.772 percent, a six-week high.
Total foreign holdings of Treasuries rose for a 10th month, climbing $6 billion, or 0.1 percent, to $5.482 trillion. Overseas investors held 50.4 percent of the Treasury’s outstanding public debt in October, the smallest share since May, the data show.
Central banks worldwide have started shifting away from inflation targets, which may lead to short-term depreciation in those countries’ currencies as stimulative monetary policy is extended, UBS AG wrote today in a note to clients.
UBS raised its one-month euro target to $1.33 from $1.30 and its three-month estimate to $1.30 from $1.25 as the European Central Bank continued to refrain from cutting interest rates even as euro-zone countries start running current account surplus. Meanwhile, the Federal Reserve last week raised its outright asset purchases and has targeted a 6.5 percent unemployment rate.
The firm raised its one-month dollar target to 85 yen per dollar from 80 and its three-month prediction to 88 from 85. The newly elected prime minister is likely to increase government bond purchases in addition to imposing a higher inflation target, UBS said.
The euro may advance versus the dollar to the strongest level in almost 10 months after breaking key resistance hurdles of $1.3140 to $1.3172, Cilline Bain, a London-based technical analyst at Credit Suisse Group AG, wrote to clients.
“Last week’s very sharp rally completed a long-term inverted head-and-shoulders reversal pattern,” Bain said in a telephone interview. “That suggests that a much longer-term rally to $1.40 is going to unfold in the next six months.”
Abe’s LDP won 294 seats in Japan’s 480-member lower house of parliament. Outgoing Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three-quarters of its lawmakers, according to public broadcaster NHK.
“People that fight the Abe government will find themselves out of control,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Nobody wants to fight this trend and there is still a lot of interest to sell yen against dollar and euro on dips.”
The yen earlier fell as much a 1.2 percent against the dollar, the biggest drop since Nov. 15.
Japan’s currency was the strongest net sold currency today, according to Bank of New York Mellon client flows. In the past five days, the cumulative net-outflows are more than three times as strong as the average during the past year, the bank said.
The yen’s declines may be limited against the dollar as positioning becomes more crowded. Futures traders increased bets to the most since July 2007 that the yen will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. Net shorts were at 94,401 wagers on Dec. 11, compared with 90,326 a week earlier.
The 14-day relative strength index was at 25.3 below the 30 level for a fourth day. A reading of 30 or lower indicates an asset may have fallen too far too quickly and is due for a correction. The yen’s relative strength versus the euro was 22.7.
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