Yen Falls After BOJ’s Iwata Repeats Easing Pledge; Aussie Climbs

The yen extended its three-week decline against the euro after Deputy Governor Kikuo Iwata reiterated the Bank of Japan’s commitment to unprecedented monetary easing.

The yen weakened against all its major peers on prospects the BOJ will say after a meeting this week it plans to continue buying more than 7 trillion yen ($71.7 billion) in bonds each month to end deflation. The euro traded near a two-year high against the dollar before the Federal Reserve begins a two-day meeting tomorrow, with economists predicting policy makers will refrain from tapering stimulus. The Australian and New Zealand dollars gained along with Asian shares.

“The Bank of Japan, the Fed and the Bank of England are still effectively printing money, and the ECB is not,” said Derek Mumford, a director at Rochford Capital, foreign-exchange risk-management company in Sydney, referring to the European Central Bank and its global peers. “It’s a natural trade for the euro to strengthen. I still think the yen will weaken.”

The yen declined 0.2 percent to 134.68 per euro as of 6:55 a.m. in London from Oct. 25, extending a 0.5 percent drop from last week. It fell 0.2 percent to 97.60 per dollar. The shared currency was little changed at $1.3799, after reaching $1.3832 on Oct. 25, the strongest since November 2011.

The MSCI Asia Pacific Index of shares jumped 1 percent. Trading in London may be subdued as the worst storm in five years forced rail operators across southern Britain to cancel morning rush-hour services.

Easing Pledge

The BOJ will continue to buy bonds until it achieves its 2 percent inflation target, Deputy Governor Iwata said yesterday in Shimonoseki, western Japan. The country’s monetary and fiscal policies are at a critical point for ending deflation, he said. Policy makers hold a one-day meeting on Oct. 31.

Japan’s Prime Minister Shinzo Abe is attempting to revitalize the nation’s economy through a program of monetary easing, fiscal stimulus, and structural reforms -- the so-called three arrows of Abenomics.

“We still remain firmly in the camp that the yen will weaken, and weaken materially in the months ahead,” John Horner, a Sydney-based currency strategist at Deutsche Bank AG, said in a Bloomberg Television interview today. “We do think Abenomics will work. We do expect to see further indication as to the detail of those reform measures in the weeks and months ahead that will give us greater confidence that that dollar-yen move will persist.”

Technical Signal

The yen fell against the dollar after failing to maintain gains above a key technical indicator. The yen closed at 97.42 per dollar on Oct. 25, weaker than its 200-day moving average, after touching a two-week high of 96.94.

The Japanese currency will finish 2013 at 100 per dollar, and then reach 110 at the end of 2014, according to median estimates of analysts surveyed by Bloomberg.

It has tumbled 20 percent in the past year, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has added 0.5 percent, and the pound has gained 1 percent. The euro has strengthened the most, rising 8 percent.

Fed policy makers, meeting this week, are trying to gauge the strength of the U.S. expansion. The central bank will wait until its March 18-19 meeting to pare the monthly pace of asset buying to $70 billion from $85 billion, according to the median of responses in a Bloomberg News poll this month.

Europe’s single currency was near a two-month high versus the pound before Bank of England Chief Economist Spencer Dale speaks today in London. He said earlier this month on Twitter that policy makers are “unlikely” to raise interest rates before 2015. “When we raise interest rates economy should be stronger, higher employment, higher real wages,” he wrote.

French Confidence

Consumer confidence in France, Europe’s second biggest economy, probably increased to 86 this month, matching the level reached in February, according to the median estimate in a Bloomberg survey before tomorrow’s data.

“The surprises that have come from Europe, that along with capital inflows to Europe, have really benefited the euro,” Mitul Kotecha, the Hong Kong-based head of foreign exchange strategy at Credit Agricole SA (ACA), said today in a Bloomberg Television interview. “Once we start getting $1.38 and above, it becomes a bit more tenuous.”

The euro bought 85.301 pence from 85.395, after touching 85.553 on Oct. 24, the highest since Aug. 29.

The Australian and New Zealand dollars strengthened against most major peers before a report this week predicted to show manufacturing grew at the fastest pace in 18 months in China, the biggest trading partner of both South Pacific nations.

China Manufacturing

The National Bureau of Statistics and China Federation of Logistics and Purchasing will say their Purchasing Managers’ Index (CPMINDX) rose to 51.2 in October, according to the median estimate of economists ahead of the Nov. 1 report.

“The Australian dollar’s benefited from some better numbers out of China,” said Credit Agricole’s Kotecha. “Whether we get back to parity anytime soon, I think, is doubtful. I think Aussie looks now to be a little bit more stretched.”

The Aussie rose 0.1 percent to 95.98 U.S. cents, while the kiwi gained 0.2 percent to 82.97 U.S. cents.

To contact the reporters on this story: Kevin Buckland in Tokyo at kbuckland1@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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