Yen Rises for Second Day on Lack of BOJ Consensus; Euro Declines

The yen strengthened for a second day against the dollar as a lack of unity among Japanese lawmakers for the government’s picks to run the central bank damped speculation for accelerated monetary easing.

Japan’s currency rose versus all its 16 major peers and bullish bets on the yen in the options market climbed to a nine- month high after the largest opposition party said yesterday it would vote against deputy governor nominee Kikuo Iwata, who advocates more easing. The euro weakened as Italian borrowing costs rose at a debt sale. New Zealand’s dollar dropped on speculation a worsening drought will weigh on the economy.

“The development surrounding Iwata’s nomination caused a bit of a pullback in dollar-yen,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “We expect the yen’s rebound to be short-lived because this issue doesn’t change Japan’s policy outlook. The yen is likely to resume its weakness against the dollar in coming days.”

The yen appreciated 0.4 percent to 95.67 per dollar as of 7:23 a.m. in New York after gaining 0.4 percent yesterday. Japan’s currency strengthened 0.7 percent to 124.36 per euro after sliding to 126.04 yesterday, the weakest since Feb. 13. The euro fell 0.3 percent to $1.2997.

The Your Party said today it will oppose Haruhiko Kuroda’s nomination for BOJ governor and Hiroshi Nakaso for deputy, while supporting Iwata. The Japan Restoration Party said it will endorse Kuroda and Iwata and oppose Nakaso. The main opposition Democratic Party of Japan said yesterday it opposed Iwata because he advocates changing the central bank law to give the government more control in setting policy.

‘Yen Correction’

“The objection to Iwata’s nomination is being used as an excuse for the yen correction,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.

Current Governor Masaaki Shirakawa is due to step down along with his two deputies on March 19. Iwata may be confirmed without backing from the DPJ if Prime Minister Shinzo Abe can secure the support of the smaller opposition parties.

The three-month dollar-yen risk reversal rate slid as low as minus 0.145 percent, the least since June 4, indicating increased demand for options that grant the right to buy Japan’s currency versus the greenback.

The yen has slumped 7.6 percent this year, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid expectations a new BOJ leadership will boost cash infusions. The dollar rose 3.1 percent against their developed-market peers on signs the U.S. recovery is gathering pace.

Recovery Signs

“We only see definitive signs of recovery in the U.S. and nowhere else,” Stephen Jen, managing partner at SLJ Macro Partners LLP, said at Bloomberg Link’s FX Debates in London. “In the world where growth is decoupling and the U.S. is leading the world into a recovery, the dollar will perform quite well as risk capital is attracted into the U.S. It’s very hard to short the dollar now.”

The euro fell for a second day against the dollar after Italian borrowing costs increased at a debt sale amid concern a political deadlock in the country will derail plans to implement austerity measures.

Italy sold 3.32 billion euros of a 2015 note at 2.48 percent, up from the 2.30 percent at the prior auction on Feb. 13. The Treasury sold 2 billion euros of securities maturing in 2028 at 4.90 percent versus with 4.805 percent when the bonds were sold via banks on Jan. 15.

Kiwi Slides

New Zealand’s dollar dropped for a second day versus the U.S. currency after Finance Minister Bill English said yesterday the dry weather could hurt economic growth.

Drought declarations were extended to most of North Island last week, including the nation’s biggest milk-producing region. Food prices fell 0.3 percent last month after increasing 1.9 percent in January, official data showed today.

“The drought continues to worsen on an almost daily basis, placing downward pressure on the New Zealand dollar,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “There’s no doubt that growth in the first half of this year will be weaker as a result of the drought.”

The so-called kiwi weakened 0.3 percent to 82.43 U.S. cents after declining to 81.88 cents on March 8, the lowest level since Dec. 28.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

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

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