Yen Gains on Speculation Drop Too Rapid; Aussie Rises Before RBA

The yen rose against the euro and the majority of its major peers as technical indicators signaled the pace of recent weakening has been too quick.

Japan’s currency halted losses against the dollar after completing on Feb. 1 a record 12 straight weeks of declines, triggered by speculation the Bank of Japan (8301) will boost monetary stimulus. The euro traded 0.6 percent from a 14-month high versus the greenback before a report predicted to show investor confidence improved in the region. Australia’s dollar rose before the nation’s central bank meets on policy tomorrow.

The yen “can’t keep weakening at the same speed, so it’s natural to see a correction,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The yen weakness story remains on expectations that the BOJ will keep its accommodative stance for a long time.”

The yen rose 0.3 percent to 126.29 per euro as of 7:17 a.m. in London from last week, when it fell as low as 126.97, the least since April 2010. It gained 0.1 percent to 92.69 per dollar, after touching 92.97 on Feb. 1, the weakest since May 2010. The euro fetched $1.3628 from $1.3640 and last week reached $1.3711, the strongest level since Nov. 14, 2011.

The yen’s 12 weeks of declines against the dollar marked the longest losing streak in data compiled by Bloomberg going back to 1971.

The Japanese currency’s 14-day relative strength index against the euro was at 22 on Feb. 1, below the 30 level that some traders see as a signal an asset has fallen too far, too fast and may be due to reverse course. Against the U.S. currency, it was 24.

Yen Performance

The yen tumbled 16 percent over the past three months, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 5.1 percent, and the dollar lost 1.7 percent during the same period.

Japan’s currency slid as Prime Minister Shinzo Abe’s administration pressed the central bank to ease monetary policy further to beat deflation. Finance Minister Taro Aso said yesterday the government is imitating his Depression-era predecessor, Korekiyo Takahashi, who told the BOJ to underwrite government debt to fund deficit spending.

Gains in the yen were limited before reports predicted to show U.S. factory orders increased and European investor confidence improved, damping demand for the refuge assets.

U.S. Data

U.S. factory orders rose in December by the most in three months, economists said before a Commerce Department report today. Bookings rose 2.3 percent after being little changed in November, the median estimate in a Bloomberg News survey showed. That would follow data from last week showing payrolls expanded by 157,000 in January following a revised 196,000 advance in the prior month and a revised 247,000 surge in November.

An index measuring sentiment in the euro-area economy advanced to minus 1.7 from minus 7 in January, the Limburg, Germany-based Sentix institute is forecast to say according to the median estimate of economists in a Bloomberg survey. That would be the highest level since July 2011.

“Excessive pessimism about the European economy has eased while expectations for a U.S. recovery have increased,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo. The yen may decline toward 95 per dollar, he said.

Australia’s dollar rallied against most of its peers before a meeting tomorrow by the nation’s central bank, which is forecast to keep borrowing costs unchanged.

Australia Inflation

TD Securities Inc. and the Melbourne Institute said today consumer prices rose 2.5 percent in January from a year earlier. The Reserve Bank of Australia targets inflation in a range of 2 percent to 3 percent on average.

“Stronger economic growth and leaving rates on hold would be positive for the Aussie,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. “The Reserve Bank will continue to wait and see the impact of earlier cuts. There just doesn’t seem to be the same level of anxiety there was last year.”

The Aussie added 0.2 percent to $1.0426. It touched 96.79 yen, the highest since August 2008, before trading at 96.60 little changed from last week’s close.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

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

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