Dollar Rises Versus Yen as Traders Boost Bets Before Fed Minutes

The dollar climbed against the yen as traders increased bullish bets on the U.S. currency amid speculation the Federal Reserve will provide further guidance on plans to scale back asset purchases.

The greenback approached a five-week high it reached yesterday versus its Japanese peer, before Fed Chairman Ben S. Bernanke speaks tomorrow, the same day minutes of the U.S. central bank’s June meeting are due and Bank of Japan officials are set to begin a two-day gathering. Australia’s dollar weakened as traders increased bets the nation’s Reserve Bank will reduce interest rates next month as China’s economy slows.

“As the dollar is being bid, the euro is looking heavy,” said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. “It’s possible the FOMC minutes will provide hints of a reduction in quantitative easing,” Murata said in reference to the Federal Open Market Committee.

The dollar gained 0.3 percent to 101.29 yen as of 7:05 a.m. in London. It touched 101.53 yesterday, the highest since May 30. The greenback lost 0.1 percent to $1.2881 per euro. The yen declined 0.4 percent against the 17-nation currency to 130.48.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus currencies of six major U.S. trade partners including the euro and yen, was little changed at 84.198 after touching 84.588 yesterday, the highest since July 2010.

Bets Raised

Futures traders increased bets on Dollar Index gains last week, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on an advance in the gauge compared with those on a drop -- so-called net longs -- was 15,672 in the week through July 2, compared with 12,281 in the previous period.

The Fed will release tomorrow minutes of its June meeting when Bernanke said the U.S. central bank will probably taper its $85 billion in monthly bond buying later this year and halt purchases around mid-2014 as long as the world’s largest economy performs in line with projections. Bernanke is scheduled to speak tomorrow on economic policy in Boston.

The dollar has gained 7.4 percent this year, the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has risen 4.6 percent since Dec. 31, the second-biggest advance while the yen is the biggest loser, with a 9.6 percent drop.

Yen Weakness

“The macro dynamic and monetary policy dynamic are still suggesting yen weakness is the game to be playing,” Sacha Tihanyi, a currency strategist at Scotiabank in Hong Kong, said in a Bloomberg Television interview. “We’re still looking for 105 by the end of this year,” Tihanyi said in reference to the dollar-yen exchange rate.

BOJ Governor Haruhiko Kuroda and his fellow policy makers will gather tomorrow for a two-day meeting. Officials will discuss upgrading their assessment of the nation’s economy by using the word “recover” for the first time in more than two years, people familiar with the central bank’s discussions said.

Last month, they refrained from extending the length of loans they use to smooth volatility and stuck with a pledge from April to increase the monetary base by 60 trillion yen ($593 billion) to 70 trillion yen per year.

“The long-term upward trend for dollar-yen remains intact based on the divergence of the two nations’ monetary policy,” said Akira Moroga, a manager of foreign-exchange products at Aozora Bank Ltd. (8304) in Tokyo. Some selling of call options, which grant the right to buy a currency, on the dollar is “is limiting the pace of yen depreciation.”

Risk Reversal

The one-month dollar-yen risk reversal rate dropped to minus 1.05 percent, a level unseen since June 14 and indicating increasing demand for options to purchase the yen against the dollar.

Norddeutsche Landesbank, Macquarie Bank Ltd. and Banco Santander SA are all calling for the yen to tumble to 110 per dollar by year-end. The lenders are among the five top-ranked forecasters for the currency last quarter, according to data compiled by Bloomberg. That compares with the median estimate of 105 by Dec. 31 in a Bloomberg survey of analysts.

The Aussie dollar dropped versus most of its peers after Chinese government figures showed the consumer price index for the world’s second-biggest economy rose 2.7 percent in June from a year earlier, more than the 2.5 percent forecast by economists in a Bloomberg News survey. China is Australia’s biggest trading partner.

Export Outlook

“The higher China inflation suggests less likelihood the People’s Bank of China will provide monetary policy support,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia. (CBA) “The new Chinese government is less focused on engineering rapid economic growth and more focused on sustainability, so the market has marked down demand for Australian exports to China, and pushed down the Aussie.”

The Australian was little changed at 91.39 U.S. cents. It reached 90.37 on July 3, the lowest since September 2010.

Interest-rate swaps data compiled by Bloomberg show traders see a 57 percent chance the RBA will reduce its benchmark interest rate to an unprecedented 2.5 percent at its next meeting on Aug. 6. The rate already stands at a record low of 2.75 percent.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

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

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