Yen Drops Amid Stimulus Bets in Longest Slump Since 1989

The yen slid versus the dollar in its longest weekly losing streak in almost a quarter-century on speculation Japanese policy makers were preparing measures to stimulate the economy that may debase the currency.

The euro rose against all of its 16 most-traded peers as European Central Bank President Mario Draghi said the region’s economy should gradually recover. South Africa’s rand tumbled as Fitch Ratings downgraded the nation. The yen touched a 30-month low versus the dollar after Japan’s government said it will spend 10.3 trillion yen ($116 billion) in new stimulus efforts. The Bank of Japan (8301) meets Jan. 21-22.

“The overall trend remains a downward one for the Japanese currency,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview. “The key to the outlook for the yen is going to be whether or not the Bank of Japan takes that aggressive stance that the market anticipates, and to see how successful the government is at stimulating.”

The yen lost 1.2 percent to 89.18 per dollar in New York trading this week and reached 89.45, the weakest level since June 28, 2010. It was the currency’s ninth weekly loss, the longest stretch since 10 weeks ended in February 1989. The Japanese currency tumbled 3.3 percent to 119.01 per euro in its fifth weekly loss and touched 119.35, the least since May 2011.

The euro gained 2.1 percent, the most since the five days ended Sept. 14, to $1.3343.

Currency Bets

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.

Borrowing in yen and investing in the 10 currencies that make up the Bloomberg-JPMorgan Chase & Co. Asia Dollar Index returned an annualized 77 percent in the three months through Jan. 10. That beat so-called carry trades funded in U.S. dollars or the euro, which gained 7.8 percent and lost 4.3 percent, data compiled by Bloomberg show.

In carry trades, investors borrow where interest rates are low to buy higher-yielding assets elsewhere.

Inflation Goal

The BOJ is set to adopt the 2 percent inflation target advocated by Japanese Prime Minister Shinzo 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 are signing up to the government’s policy stance,” Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London, said yesterday. “For now, everyone is getting onto this train, and the question now is how far the yen can weaken.”

The yen’s 8.9 percent drop over the past month was the biggest among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar lost 0.7 percent, while the euro rose 2.2 percent.

Trade Deficit

The Dollar Index ended yesterday at 79.563, the lowest since Dec. 20, after the U.S. trade deficit unexpectedly widened in November. The gap swelled 15.8 percent to $48.7 billion, the biggest since April, Commerce Department data showed. A Bloomberg survey forecast a narrowing to $41.3 billion.

The euro reached the highest level against the greenback since April yesterday, a day after the ECB kept its benchmark interest rate at a record low of 0.75 percent and Draghi forecast recovery later this year. The 17-nation currency touched $1.3366.

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

Federal Reserve Chairman Ben S. Bernanke will speak at the University of Michigan on Jan. 14, and six other Fed officials also are scheduled to give speeches next week. The U.S. central bank is in its third round of bond purchases as it seeks to drive down unemployment and spur economic growth.

Running Space

“In the wake of the less-dovish Draghi press conference and probable dovish Fed-speak next week, the euro has a bit to run,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said yesterday in a telephone interview.

The Australian and New Zealand dollars rose for a second week as China’s imports gained 6 percent in December, the most in six months, data showed on Jan. 10. Exports climbed 14 percent, the most since May. China is Australia’s biggest trade partner and New Zealand’s second-largest export market.

The Aussie appreciated 0.5 percent to $1.0535, and the kiwi, as New Zealand’s dollar is nicknamed, gained 0.6 percent to 83.63 U.S. cents.

“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 all of its major peers after Fitch cut the nation’s rating to BBB from BBB+, citing slowing growth, a widening budget deficit and rising unemployment. The currency lost 1.8 percent to 8.72 per dollar.

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

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

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