Aussie Touches 20-Month High Against Yen on BOJ Stimulus Bets

The Australian dollar touched the strongest level in 20 months against the yen after data showed a decline in Japan’s consumer prices, adding to the case for increased monetary easing by the nation’s central bank.

New Zealand’s dollar reached a two-week high versus the yen, heading for the best annual performance since 2009, amid speculation the Bank of Japan (8301) will accede to Prime Minister Shinzo Abe’s calls for a higher inflation target. The currencies of both South Pacific nations were supported before reports which may signal improvement in Chinese manufacturing, boosting trade prospects.

“There are persistent expectations that the new administration will continue to add to pressure on the BOJ to ease policy, putting the yen under selling pressure,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo. “There is a lot of momentum in Aussie-yen and it wouldn’t surprise me if it tests higher.”

The Australian dollar touched 89.83 yen, the highest since April 2011, before trading at 89.67 as of 4:01 p.m. in Sydney, 0.4 percent above yesterday’s close in New York. It was little changed at $1.0379. For the year, the so-called Aussie is headed for a 14 percent gain versus the Japanese currency and a 1.7 percent climb against the greenback.

New Zealand’s dollar, known as the kiwi, advanced 0.3 percent to 70.88 yen, after reaching 71.14, the strongest since Dec. 17. The currency was poised for a 19 percent gain against the yen in 2012, and a 5.6 percent rise against the greenback.

Japanese Deflation

Japan’s consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, the statistics bureau said today. The BOJ next meets on Jan. 21-22, when policy makers are expected to discuss the inflation goal currently set at 1 percent.

Benchmark interest rates are as low as zero in Japan and the U.S. compared with 3 percent in Australia and 2.5 percent in New Zealand, drawing investor funds into the higher-yielding Aussie- and kiwi-denominated assets.

Interest-rate swaps data compiled by Bloomberg show traders see a 58 percent chance the Reserve Bank of Australia will lower its benchmark to 2.75 percent in February, lower than the 60 percent probability indicated yesterday.

Chinese Manufacturing

The Aussie and kiwi were also supported before manufacturing data on Dec. 31 from China, which is Australia’s biggest trading partner and New Zealand’s second-biggest export market.

The purchasing manager’s index of Chinese manufacturing by HSBC Holdings Plc and Markit Economics will probably rise to 50.9 in December from 50.5 the previous month, according to the median estimate of economists surveyed by Bloomberg News. A separate, government-backed index of manufacturing due on Jan. 1 will show an increase to 51 from 50.6, economists estimate.

“The Chinese manufacturing data has the potential to move the Aussie and kiwi,” said Gaitame.com’s Gervaise. “But given the timing of the releases, the reaction may be more muted than usual.”

Australian bond yields fell and demand for the South Pacific nations’ currencies was limited as the deadline looms for the so-called fiscal cliff of tax increases and spending cuts that could send the U.S. into recession.

President Barack Obama plans to meet with Democratic and Republican congressional leaders at the White House today. House Republican leaders also announced the chamber will meet on Dec. 30 as lawmakers seek to avoid more than $600 billion of spending cuts and tax increases set to begin in January.

‘Positive Tones’

“Investors appear to have further reduced their risk-on exposure over the past week,” BNP Paribas SA’s currency strategy team led by Steven Saywell, wrote in a research note yesterday. That suggests there is scope for the U.S. dollar to fall and commodity currencies to rally “on any positive tones from Washington.”

The yield on Australia’s 10-year government bond dropped three basis points, or 0.03 percentage point, to 3.32 percent.

Australia’s dollar has lost 1 percent this year, according to Bloomberg Correlation-Weighted Indexes which track 10 developed-nation currencies. The New Zealand dollar gained 3.2 percent over the same period.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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