The dollar touched the highest in more than six months versus the yen, as traders bet on diverging monetary policy between the U.S. and Japanese central banks.
The greenback headed for a seventh weekly gain against the yen as the yield spread between Treasuries and Japanese government bonds approached the widest since April 2011. The Federal Reserve and the Bank of Japan both meet next week to set policy. The euro reached a five-year high against the yen, heading for a fifth weekly advance, before European Central Bank Vice President Vitor Constancio and executive board members Benoit Coeure and Peter Praet speak today.
“Dollar-yen is being driven by the monetary policies of the Fed and BOJ,” said Yujiro Goto, a senior currency strategist at Nomura International Plc in London. “The dollar is being bid as the Treasury yield spread over JGBs widens.”
The dollar rose 0.2 percent to 103.56 yen as of 12:29 p.m. in Tokyo from yesterday, heading for a 0.7 percent gain this week. It earlier touched 103.66, the highest since May 22, when it reached 103.74, a level unseen since October 2008.
The greenback was little changed at $1.3755 per euro, set for a 0.4 percent weekly decline. The shared currency advanced 0.2 percent to 142.48 yen, 1 percent stronger for the week, after touching 142.52, the most since October 2008.
Treasury yields rose yesterday after a report showed retail sales beat economists’ forecasts. Sales increased 0.7 percent in November from the previous month, the most since June, the Commerce Department figures showed yesterday.
The 10-year Treasury yield was little changed at 2.87 percent from yesterday, when it rose two basis points, according to Bloomberg Bond Trader prices. The yield premium over equivalent Japanese government bonds was at 2.19 percentage points, near the 2 1/2-year high of 2.24 reached on Dec. 5.
The Fed will probably begin reducing $85 billion in monthly bond buying at the Dec. 17-18 meeting, according to 34 percent of economists surveyed on Dec. 6 by Bloomberg News, an increase from 17 percent in a Nov. 8 poll.
“Speculation that the Fed will be ahead of the curve and taper in December is building, boosting the dollar,” said Kumiko Ishikawa, an analyst at Gaitame.com Research Institute Ltd. “While more people are expecting it to happen this month, others are divided between a January and March start to tapering.”
The Fed Bank of New York’s general economic index probably rose to 5 this month from minus 2.21 in November, the median estimate of economists surveyed by Bloomberg shows before the data on Dec. 16. Positive readings signal expansion in New York, northern New Jersey and southern Connecticut. Economists in a separate Bloomberg poll predict a Fed report the same day will show industrial production increased 0.6 percent last month from October, when it slid 0.1 percent.
The BOJ, which buys more than 7 trillion yen ($67.6 billion) of JGBs every month in its bid to stoke inflation, starts a two-day meeting on Dec. 19. The central bank aims to keep ultra-easy monetary policy in place beyond the two-year timeframe, the Financial Times reported, citing an interview with Governor Haruhiko Kuroda.
The yen has weakened 4.5 percent in the past month, the biggest decline after the Australian dollar’s 4.7 percent drop, among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro climbed 2.3 percent in the same period while the dollar added 0.1 percent.
The ECB kept its benchmark rate unchanged this month. Vice President Constancio said in a November interview that a negative deposit rate would be invoked only in “quite extreme situations” and the council is “not really near a decision. He will speak today in Tallinn, Estonia.
ECB policy makers Peter Praet and Benoit Coeure are also scheduled to speak separately in Antwerp and Paris today. Praet told Bloomberg Television on Nov. 14 that the bank may adopt negative rates as it battles slow inflation. Coeure said this month the ECB would consider offering more long-term loans to banks only when they are in a position to lend to companies and households.
The Aussie dollar fell, putting it on track for its longest stretch of weekly losses since 1985, as Reserve Bank of Australia Governor Glenn Stevens signaled a weaker currency is preferable over lower interest rates to help spur the nation’s economy.
The currency level at 85 U.S. cents ‘‘would be closer to the mark than 95 cents,’’ Stevens said in an interview published in the Australian Financial Review today.
Australia’s dollar fell as low as 89.14 U.S. cents, the least since Aug. 30, before trading little changed at 89.47. It has dropped 1.7 percent over five days in an eighth-straight week of declines, the longest stretch since March 1985.
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