Yen Advances as BOJ Delays Open-Ended Asset Buying

The yen rose by the most in eight months against the dollar after the Bank of Japan (8301) said it will conduct open-ended asset purchases from 2014, disappointing investors who expected bolder action sooner.

Japan’s currency advanced from near its weakest level against the dollar since June 2010 as the BOJ said it will buy about 13 trillion yen ($146.6 billion) in assets per month from January 2014 and set a 2 percent inflation target. The euro rose for the first time in three days versus the dollar after German investor confidence in January increased to the highest in 2 1/2 years, adding to signs that Europe’s largest economy is gathering momentum.

“The timing is the factor that caused the market to be a little disturbed,” said Jeremy Stretch, head of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London, referring to the decision to buy assets from next January. “We haven’t seen the big bazooka being taken out in terms of the weakening of the yen, which is implicit in getting anywhere near that inflation target.”

The yen gained 1 percent to 88.69 per dollar at 7:58 a.m. New York time, after jumping by 1.4 percent, the most since May 17. It reached 90.25 yesterday, the weakest since June 23, 2010. Japan’s currency gained 1 percent to 118.15 per euro, after appreciating by as much as 1.7 percent. The 17-nation common currency rose 0.1 percent to $1.3323.

“In order to overcome deflation early and achieve sustainable economic growth with price stability, the Government and the Bank of Japan will strengthen their policy coordination,” the BOJ said in a statement today. The central bank said it will pursue monetary easing and aim to achieve the 2 percent inflation target at “the earliest possible time.”

Weidmann Warning

Prime Minister Shinzo Abe’s drive for looser monetary policy and a weaker yen may put the BOJ’s independence at risk and increase tensions with trading partners, according to European Central Bank governing council member Jens Weidmann. In a speech in Frankfurt yesterday, Weidmann warned against “politicizing” the yen exchange rate and interfering in monetary policy.

Japan’s currency has tumbled 11 percent in the past three months, the biggest decline among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen is down 9.9 percent against the greenback in the same period.

German Confidence

“With the Abe effect and the fact that the BOJ is gradually losing independence with the government executing harsh pressure on how aggressive monetary easing is supposed to be, there’s still a way for dollar-yen to go,” said Carolin Hecht, a Frankfurt-based strategist at Commerzbank AG. “The expectations were so extreme that the BOJ couldn’t meet them. It’s a short-term correction” and the Japanese currency may weaken to 96 by year-end, she said.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 31.5 from 6.9 in December, the highest since May 2010. Economists in a Bloomberg survey forecast a gain to 12.

The single currency also rose after a Bundesbank spokesman denied speculation Weidmann planned to step down as president of Germany’s central bank.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, fell 0.4 percent to 79.748.

Sales of existing homes in the U.S. climbed 1.2 percent to a 5.1 million annual rate last month, the strongest since November 2009, according to the median estimate of economists surveyed by Bloomberg before the National Association of Realtors publishes the figures today. Another report this week may say new-home sales picked up to a 385,000 annual pace, the best showing since April 2010.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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