Yen Falls to 94 Per Dollar for 1st Time Since 2010 on BOJ

The yen weakened to 94 per dollar for the first time since May 2010 on speculation Japan’s government will hasten the selection of a new central bank chief to take further steps to end deflation.

Japan’s currency added to yesterday’s biggest drop versus the euro in more than a week after Bank of Japan Governor Masaaki Shirakawa said he will step down on March 19, almost three weeks before his term is due to end. Demand for the 17- nation euro was supported on prospects the European Central Bank will refrain from easing monetary policy tomorrow. Australia’s dollar slid after data showed the nation’s retail sales unexpectedly fell in December.

“The new BOJ governor is expected to be someone who will push easing hard,” said Masato Yanagiya, the head of currency and money trading in New York at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “The yen weakness trend is likely to remain.”

The yen touched 94.06 per dollar, the lowest since May 5, 2010, before trading at 93.92 at 7:01 a.m. in London, down 0.3 percent from the close in New York. It fell 0.2 percent to 127.44 per euro, after dropping to 127.71, the weakest since April 2010. The common currency slid 0.1 percent to $1.3571.

Japan’s Prime Minister Shinzo Abe will present his candidate for the next BOJ governor to opposition parties after a visit to the U.S. this month, public broadcaster NHK reported today, without saying where it got the information. Shirakawa’s exit coincides with the departure of two deputy governors.

BOJ Candidates

The short-list to replace Shirakawa is probably composed of Asian Development Bank President Haruhiko Kuroda and former BOJ Deputy Governors Kazumasa Iwata and Toshiro Muto, wrote Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., who used to work at the central bank, in a note last month.

Abe has repeatedly said he wants the BOJ to take responsibility for the 2 percent inflation target it agreed to set last month. His government has defined ending deflation as central to efforts to revive the world’s third-biggest economy.

The International Monetary Fund supports the nation’s efforts to end deflation, a government official said today. IMF Deputy Managing Director David Lipton told Economy Minister Akira Amari that Japan is going in right direction in trying to achieve the 2 percent inflation goal, a Cabinet official told reporters, asking not to be named because of government policy.

The yen tumbled 17 percent over the past three months, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 5.2 percent, and the dollar lost 1.2 percent during the same period.

Yen RSI

The Japanese currency’s 14-day relative strength index against the dollar was at 23 today, below the 30 level that some traders see as a signal an asset has fallen too rapidly and may be due to reverse course. Against the euro, it was 25.

“Moves in the yen hinge on how strong the government and BOJ’s will is to weaken the currency,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-largest banking group by market value. “Yen weakness will stay for a long time with occasional corrections.”

In Europe, the ECB, which has held its main refinancing rate at 0.75 percent since July, will probably make no change at tomorrow’s policy meeting, according to all 60 economists surveyed by Bloomberg News.

“Speculation that the ECB will cut interest rates has receded,” said SMBC’s Yanagiya. “The bias is for the euro to strengthen.”

Euro Strength

The shared currency rose against a majority of its peers yesterday after Luxembourg Finance Minister Luc Frieden said the currency’s level doesn’t concern him and its strength follows the economic reality of the euro zone.

“This reflects the fundamental data of the European economy and I highlight that a year ago we thought that the euro was incredibly weak,” Frieden said in an interview in Zurich.

Frieden’s comments contrasted with French President Francois Hollande, who said yesterday the euro area has to use the currency as an export-promoting tool just like the U.S. and China.

Government data due today are forecast to show German factory orders rose 0.7 percent in December from November, when they dropped 1.8 percent, according to the median estimate of economists in a Bloomberg News poll.

Retail sales in Australia fell 0.2 percent in December from the previous month, when they dropped a revised 0.2 percent, the Bureau of Statistics said in Sydney today. The median forecast in a Bloomberg survey of economists for a 0.3 percent gain.

The so-called Aussie dropped 0.5 percent to $1.0337 after touching $1.0336, the lowest level since Dec. 25.

“The weaker-than-expected retail sales numbers rubbed salt into the Australian dollar’s wounds,” Emmanuel Ng, a currency strategist at Oversea-Chinese Banking Corp. in Singapore, wrote in a research note today. “With the breach of $1.0400, markets may potentially look” to the 200-day moving average of $1.0312.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

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

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