The yen weakened, halting a two-day advance, as investors overlooked the Bank of Japan’s decision to keep its asset purchases unchanged and speculated it will add stimulus to turn around an economy in recession.
The yen fell after Kazumasa Iwata, a potential candidate to become the next central bank head, signaled the currency has scope to depreciate further and data showed Japan’s gross domestic unexpectedly shrank. The euro was declined after France and Germany’s economies contracted. New Zealand’s dollar, nicknamed the kiwi, rose for a third day following figures that showed the nation’s manufacturing accelerated.
“The market’s focus is shifting to the BOJ under the new governor,” said Yoshiko Takayasu, the Tokyo-based head of corporate sales for National Australia Bank Ltd. “There are expectations that the yen would weaken towards 100 per dollar amid hopes there will be further monetary stimulus.”
The yen lost 0.2 percent to 93.63 per dollar at 7:01 a.m. in London. It gained 0.1 percent to 125.51 per euro, advancing for a third day. The 17-nation euro declined 0.3 percent to $1.3411.
The BOJ refrained from adding to stimulus and rejected a board member’s proposal for keeping interest rates virtually at zero until a price target is in sight.
The central bank last month doubled its inflation target to 2 percent and pledged open-ended bond buying. Governor Masaaki Shirakawa and two deputies will step down next month, allowing Prime Minister Shinzo Abe to pick leaders to prosecute his plan for expanded monetary easing.
Iwata, a former deputy governor at the BOJ, said in a statement the price goal can’t be reached without a correction in the yen’s strength. The yen at 90 to 100 per dollar marks a return to equilibrium, he said.
“There is a lot of expectation about the Bank of Japan’s future,” said Tomomi Yamashita, a senior fund manager at Shinkin Asset Management Co. in Tokyo. “If the dovish Kazumasa Iwata takes the governor’s position, there is hope we’ll see more monetary easing.”
Japan’s currency has tumbled 17 percent in the past three months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 1.7 percent and the euro rose 4.1 percent.
Citigroup Inc. said in a report yesterday it increased yen short positions in its Group of 10 overlay portfolio by 5 percent. It reduced dollar short positions by the same amount. Shorts are bets than an asset’s price will decline.
Japan’s GDP contracted an annualized 0.4 percent in the three months through December, following a revised 3.8 percent contraction in the previous quarter, the Cabinet Office said today. The median economist forecast was for 0.4 percent growth.
The euro weakened against most major counterparts after the national statistics office Insee in Paris said France’s GDP shrank 0.3 percent in the fourth quarter, while economists had predicted a 0.2 percent drop. Germany’s economy, the euro area’s biggest, shrank 0.6 percent in the fourth quarter, the nation’s statistics bureau said, more than the 0.5 percent contraction forecast in a Bloomberg survey.
“The European crisis has stabilized, but there are lingering problems and the economy is not looking that rosy,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
Figures later today will probably show the euro-area economy probably contracted 0.4 percent in the fourth quarter from the previous three-month period when it fell 0.1 percent, economists said.
Group of 20 finance ministers and central bankers are due to start a two-day meeting tomorrow in Moscow. The group will pledge in a joint statement to avoid policies that lead to competitive currency devaluations, Japan’s Asahi newspaper said, citing people familiar with the matter.
The Group of Seven nations released a statement on Feb. 12 that appeared to signal acceptance for a weaker yen, so long as Abe’s government doesn’t actively pursue devaluation.
That position was later challenged when an unidentified official from a G-7 nation issued a clarification saying the group was concerned about excessive moves in the yen.
“Guiding the yen lower is a policy that punishes neighboring nations,” Eisuke Sakakibara, a former Japanese Ministry of Finance official, said in an interview yesterday. Impressions overseas that Japan is trying to orchestrate further declines in the yen mean that “it will be criticized by the G-7, as well as the G-20,” he said.
Demand for New Zealand’s currency rose after a report showed the nation’s manufacturing expanded. The Performance of Manufacturing Index rose to 55.2 in January from a revised 50.4 in December, Business New Zealand and the Bank of New Zealand Ltd. said in a statement in Wellington. A reading over 50 means manufacturing is expanding.
New Zealand’s dollar rose 0.2 percent to 84.73 U.S. cents. The kiwi touched NZ$1.2197 per Aussie dollar, the strongest since July 2010.
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