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Yen Falls to Lowest Since 2010 on Stimulus; Euro Gains

The yen slid to the weakest since June 2010 versus the dollar after Japanese Prime Minister Shinzo Abe’s government said it will spend 10.3 trillion yen ($116 billion) in new stimulus efforts that may weaken the currency.

The euro climbed after Goldman Sachs Group Inc. strategist Thomas Stolper wrote in a note that the shared currency may rise to a 14-month high. The yen declined for a ninth week, the longest losing streak since 1989, on bets the Bank of Japan (8301) is also preparing measures to spur growth. South Korea’s won gained to the strongest level against the dollar since August 2011 after the central bank kept interest rates unchanged.

“Abe announced fiscal stimulus in Japan, which is what sent the yen lower against the dollar,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a telephone interview. “We were expecting some sort of fiscal program, and they basically put some flesh on the bone.”

The yen fell 0.5 percent to 89.18 per dollar at 5 p.m. in New York and reached 89.45, the weakest level since June 28, 2010. The Japanese currency depreciated 1 percent to 119.01 per euro and touched 119.35, the least since May 2011. The euro climbed as much as 0.7 percent to $1.3366, the highest since April 3, before trading at $1.3343, up 0.5 percent.

The won strengthened 0.5 percent to 1,054.69 per dollar after the Bank of Korea held its seven-day repurchase rate at 2.75 percent.

Net Shorts

Futures traders decreased their bets that the yen will decline against the U.S. dollar for a fourth-straight week, 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 a decline in the yen compared with those on a gain -- so-called net shorts -- was 74,096 on Jan. 8, versus net shorts of 80,517 a week earlier.

Large speculators reversed their wagers that the euro will advance against the greenback after switching to that position a week earlier for the first time since August 2011. There were 8,035 net shorts on the euro on Jan. 8, versus net longs of 5,126 a week earlier.

The Dollar Index closed at 79.548, the lowest since Dec. 21 on a closing basis, after the U.S. trade deficit unexpectedly widened in November. The gap swelled 15.8 percent to $48.7 billion, the largest since April, Commerce Department data showed. A Bloomberg survey forecast a $41.3 billion shortfall.

‘Eventually Turn’

“We’re betting the U.S. economy will eventually turn the boat,” Sebastien Galy, senior foreign-exchange strategist at Societe Generale SA in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “Then you see yields going higher, the dollar going higher.”

Japan’s government will spend about 3.8 trillion yen on disaster prevention and reconstruction, and 3.1 trillion yen on stimulating private investment and other measures, the Cabinet Office said in a statement.

The Bank of Japan is set to adopt the 2 percent inflation target advocated by Abe, doubling its existing goal of 1 percent, without setting a deadline for achieving it, according to people familiar with discussions within the central bank. They requested anonymity because the talks are private. The BOJ meets on Jan. 21-22.

“We needed to see further news flow to maintain the weakness in the yen, and we’ve seen that,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The BOJ are signing up to the government’s policy stance. For now, everyone is getting on to this train, and the question now is how far the yen can weaken.”

Relative Strength

The Japanese currency’s 14-day relative strength index versus the greenback was 22 today, its third day below the level of 30, which some traders see as a signal an asset has weakened too quickly and may be due to reverse course.

The yen’s 2.1 percent drop this week was the biggest among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The dollar lost 0.9 percent, while the euro rose 1.5 percent.

The Bloomberg-JPMorgan Asia Dollar Index rose 0.3 percent this week to 118.62 and reached 118.73 today, the highest level since September 2011.

China, the top destination for exports from South Korea, Taiwan, Malaysia and Thailand, said yesterday that imports gained 6 percent in December, the fastest growth in six months. Exports climbed 14 percent, the most since May.

Improved Sentiment

“Sentiment toward China has improved,” said Adam Cole, global head of foreign-exchange strategy at Royal Bank of Canada in London. “That’s helping the Asian currencies.”

South Africa’s rand slid versus the dollar a day after Fitch Ratings cut the nation’s credit rating because of slowing economic growth, a widening budget deficit and rising unemployment. It weakened 0.8 percent to 8.72 to the dollar.

Australia’s dollar weakened versus the greenback as its failure to break through resistance at $1.06 signaled gains in the currency may have been too rapid. The Aussie fell 0.6 percent to $1.0537 after being unable to exceed $1.0599, the highest since Sept. 14, for a second straight day. Resistance is a level on a chart where sell orders may be clustered.

The euro rose for the week versus all 16 of its most-traded counterparts. Goldman’s Stolper, who’s based in London, recommended investors should bet the currency will strengthen to $1.37, the highest level since Nov. 14, 2011.

German government bonds fell, pushing yields up, as investors bought higher-yielding sovereign debt. Ten-year bund yields reached 1.61 percent, the highest level since Oct. 25. Italian 10-year yields touched 4.09 percent, the lowest since November 2010.

ECB Outlook

European Central Bank President Mario Draghi said yesterday the region’s economy should regain momentum and policy makers left the main refinancing rate at a record low of 0.75 percent.

“That’s great news, and that’s great news for the euro -- $1.35 is a reasonable level to look for,” Societe Generale’s Galy said.

The Swiss franc slid to the weakest in more than a year versus the euro after data showed consumer prices extended their longest slump in at least four decades. The nation’s central bank imposed a ceiling for the franc of 1.20 versus the euro in September 2011 to combat the threat of deflation.

The franc lost as much as 0.6 percent to 1.2201 per euro, the weakest since December 2011, before trading at 1.2188, down 0.5 percent. The Swiss currency was little changed at 91.35 centimes per dollar.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; 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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