Yen Slides to Lowest Since 2010 Amid Bets on BOJ; Euro Advances

The yen weakened beyond 90 to the dollar for the first time in 31 months amid speculation the currency will slide further as the Bank of Japan (8301) and the government work aggressively to spur economic growth.

The euro gained versus the majority of its most-traded peers as Spain’s borrowing costs fell at a 4.5 billion-euro ($6 billion) sale of bonds, underscoring increased confidence in European debt markets. The Swiss franc dropped. The Japanese currency continued its longest stretch of weekly losses since 1989 amid bets the BOJ will decide to conduct open-ended asset buying to stoke inflation. The central bank meets Jan. 21-22.

“The open-ended thing is a little bit of a new twist to the policy easing we’re expecting from Japan, and it’s started to gain traction,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “That’s what I’m attributing the latest leg lower in the yen to. The market is starting to fine-tune its expectations as to what we’ll see from policy makers over there.”

The yen declined 0.2 percent to 90.10 per dollar this week in New York and touched 90.21 yesterday, the weakest level since June 23, 2010. It was the 10th consecutive weekly loss. The Japanese currency depreciated 0.8 percent to 119.98 per euro and reached 120.71, its weakest since May 4, 2011.

The euro slipped 0.2 percent to $1.3321. It climbed to $1.3404 on Jan. 14, the highest since Feb. 29, 2012.

Franc Weakens

Switzerland’s currency tumbled against all of its 16 major peers as signs Europe’s debt crisis is easing sapped demand for haven assets. The franc depreciated to 1.2569 per euro yesterday, the weakest since the Swiss National Bank imposed an exchange-rate cap in September 2011, and lost 2.1 percent on the week to 1.2445.

European Central Bank President Mario Draghi said Jan. 10 there were “strong capital inflows” into the region. Yields on Spanish and Italian sovereign debt have declined, with Spain’s 10-year yield falling to 5.08 percent, from as much in December as 5.56, and Italy’s dropping to 4.17 percent, from 4.82.

“The crisis is being priced out more and more, which means that the Swiss franc is less in demand,” Antje Praefcke, a senior currency strategist at Commerzbank AG in Frankfurt, said in a Jan. 17 interview. “It should remain under pressure, and I think the SNB is probably pleased to see that.”

Currency Bets

Futures traders trimmed for a fifth straight week their bets that the yen will decline against the U.S. dollar, 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 65,727 on Jan. 15, versus net shorts of 74,096 a week earlier.

Speculators reversed their euro bets for a third week, wagering the shared currency will rise against the U.S. dollar. Net longs totaled 7,315 on Jan. 15, versus net shorts of 8,035 a week earlier and net longs of 5,126 the week before that.

The euro gained 1.9 percent over the past year versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The Norwegian krone was the best performer, climbing 5.2 percent, while the dollar fell 2 percent. The yen was the biggest loser, tumbling 18 percent.

Japan’s currency lost 6.5 percent against the dollar over the past month after Prime Minister Shinzo Abe’s Liberal Democratic Party swept to power. Abe, who’s campaigning to boost the economy, has called for “bold monetary policy” to defeat deflation and drive the yen lower. He’s pressing the BOJ to double its 1 percent inflation target.

Asset-Buying

At its meeting last month, the central bank expanded its asset-buying program for the third time in four months, increasing its purchase fund to 76 trillion yen ($844 billion).

A gauge of currency volatility rose to a five-month high this week, increasing chances that price swings will wipe out profits. JPMorgan Chase & Co.’s G7 Volatility Index, based on three-month options on Group of Seven nations’ currencies, increased to 9.19 percent yesterday, the most since Aug. 2.

Sterling was the third-biggest loser among major currencies this week, dropping the most against the dollar since June. The pound fell 1.6 percent to $1.5870. Norway’s krone also slid versus the greenback, depreciating 1.3 percent to 5.6001.

The South African rand sank yesterday to its lowest level since Dec. 3, dropping for a third straight week amid concern labor protests in mining and agriculture will curb exports and slow growth in Africa’s largest economy.

Anglo American Plc’s platinum unit, the world’s largest miner of the metal, said Jan. 15 it may fire as many as 14,000 workers as it idles four shafts. Production cutbacks may curb South Africa’s exports, preventing the rand from gaining even as commodity prices rise, said Mohammed Nalla, head of strategic research at Nedbank Group Ltd.

The currency fell 1.8 percent this week to 8.8805 per dollar and touched 8.9181. It was the week’s worst performance after that of the franc.

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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