The yen stopped just short of 100 to the dollar, a level it hasn’t reached in four years, as it slid after the Bank of Japan (8301) announced unprecedented stimulus measures on April 4 to end 15 years of deflation.
The Japanese currency gained yesterday, paring a second weekly loss, after a technical indicator signaled it had dropped too much, too quickly. The Dollar Index fell for a second week as lower-than-forecast retail sales added to bets the Federal Reserve will maintain stimulus that debases the currency. Data next week may show U.S. inflation slowed. The Australian and New Zealand dollars rose as investors sought higher-yielding assets.
“The real tension is on the yen,” Alan Ruskin, global head of Group of 10 foreign-exchange strategy in New York at Deutsche Bank AG, said in a telephone interview. “The Aussies and kiwis of this world did quite well.”
The yen weakened 0.8 percent to 98.37 to the dollar this week in New York and reached 99.95 on April 11, the highest since April 2009. It sank 1.8 percent to 129.02 per euro and touched 131.12, the least since January 2010. The 17-nation currency rallied 0.9 percent to $1.3113 in a second weekly gain.
New Zealand’s currency, called the kiwi, was the biggest winner against the U.S. dollar, gaining 1.9 percent to 85.89 U.S. cents. The yen was the biggest loser.
The Aussie dollar and South Africa’s rand were also among the top performers against the greenback. The rand climbed 1.7 percent, the most this year, to 8.9434 to the greenback. Australia’s dollar rose 1.2 percent to $1.0508.
Australia’s currency will be strong in the near-term on demand from Japanese investors, said Hans-Guenter Redeker, the head of global foreign-exchange strategy at Morgan Stanley in London. The benchmark interest rate in Australia is 3 percent, compared with Japan’s 0.1 percent.
“The government-bond market of Australia has become a very, very hot export item,” Redeker said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Michael McKee. “That is keeping the currency strong for now.”
The yen’s 14-day relative-strength index versus the greenback was 28.3 on April 11, its fourth straight day below the level of 30 that some traders see as a sign an asset has fallen too quickly. It was 36.7 yesterday.
The currency will probably weaken to 101.25 to the dollar if it breaches the 100 level, IG Markets Securities Ltd. in Tokyo said, citing trading patterns.
“We struggled to break 100 for a couple of sessions now,” Mike Moran, a senior currency strategist at Standard Chartered Plc in New York, said yesterday. “Yen remains the marquee macro theme, and will be for the next couple of months.”
Bank of Japan officials said April 4 the central bank will increase its monthly bond purchases to 7.5 trillion yen ($77 billion), exceeding the 5.2 trillion yen forecast in a Bloomberg survey. They set a two-year horizon for their goal of 2 percent inflation.
Yields on 10-year Japanese government bonds climbed eight basis points this week, or 0.08 percentage point, to 0.61 percent, the biggest jump since November 2010.
Confirmation of Japanese investors moving into foreign fixed-income securities hasn’t yet materialized. They sold a net 1.14 trillion yen in foreign bonds and notes in the week ended April 5, according to April 11 Ministry of Finance data.
“That is a concern,” Jerry Urwin, director of spot foreign-exchange in New York at Barclays Plc, said in a telephone interview of Japanese investment flows. “There are still some very strong forces at work, but I would like to see that confirmation.”
Barclays forecasts the yen will weaken to 103 to the dollar in a month.
The Japanese currency dropped 3.8 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which tracks 10 developed-market currencies. The dollar fell 1.2 percent, and the euro lost 0.5 percent.
Futures traders decreased their bets to the lowest level in five weeks that the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a drop in the yen compared with those on a gain -- so-called net shorts -- was 77,697 on April 9, compared with net shorts of 78,171 a week earlier.
Bets that sterling will decline against the dollar rose to the most since June 2010 as net-short contracts increased to 69,969 from 65,020, the CFTC data show. The pound ended the week little changed at $1.5343 after touching $1.5412 on April 11, the highest in seven weeks.
The U.S. Treasury said in a report yesterday it will press Japan to refrain from competitive devaluation and from targeting its exchange rate for competitive purposes. The department declined to name China a currency manipulator while saying the yuan “remains significantly undervalued.” China’s yuan rose 0.1 percent to 6.1921 to the greenback, the strongest level since 1993 on a closing basis.
Kuroda reiterated yesterday that the BOJ’s policies are not aimed at foreign-exchange rates.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, declined 0.2 percent to 82.311 this week and touched 82.046, the lowest since March 7.
U.S. retail sales dropped 0.4 percent in March, the biggest decline since June, Commerce Department figures showed yesterday. A Bloomberg survey forecast an unchanged reading.
The Fed is purchasing $85 billion of Treasury and mortgage debt a month in the third round of the quantitative-easing strategy to spur economic growth.
The U.S. consumer-price index increased 1.6 percent in March from a year earlier, economists surveyed by Bloomberg forecast before the government reports the data on April 16. The year-over-year increase in February was 2 percent.
The Fed has said one of its thresholds for keeping its key interest rate at virtually zero is inflation projected at no more than 2.5 percent.
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