Yen Weakens to Five-Year Low on Policy Outlook; Lira Declines

The yen weakened to a five-year low versus the dollar amid speculation the Bank of Japan will continue unprecedented stimulus while the Federal Reserve pares quantitative easing as the U.S. economy recovers.

Japan’s currency dropped for a fourth day as Bank of Japan minutes showed one board member said a slowdown in growth could represent a downward shift in trend. Turkey’s lira fell to a record as Prime Minister Recep Tayyip Erdogan replaced 10 ministers amid a corruption probe that led three ministers to resign. Australia’s dollar declined against all its major peers as Chinese stocks slid to the least since August.

“This definitely means a further slowdown in growth will force the BOJ to be even more aggressive,” Sireen Harajli, a strategist at Mizuho Bank in New York, said in an interview. “We see further strengthening of the dollar against the yen.”

Japan's Economic Shock Therapy

The yen fell 0.4 percent to 104.81 per dollar at 5 p.m. New York time, after reaching 104.84, the weakest level since October 2008. Japan’s currency dropped 0.5 percent to 143.49 per euro, after sliding to a five-year low of 143.54. The 17-nation shared currency rose 0.1 percent to $1.3691.

Winners, Losers

Japan’s currency has lost 17.2 percent against the dollar in 2013, the second biggest decline among its 16 major peers after the South African rand’s 18.2 percent drop. The euro and Danish krone were the biggest winners, having rallied 3.8 percent.

South Korea’s won as been the best-performer in the fourth quarter with a 1.5 percent appreciation. Brazil’s real was the second biggest loser after the yen, dropping 5.8 percent.

This month, the Swiss franc has been the top performer, adding 1.1 percent, while Australian dollar leads losers with a 2.3 percent decline.

Among the 31 most-traded currencies tracked by Bloomberg, the Israeli shekel has gained the most versus the dollar this year at 7 percent. The Argentine peso lost the most at 24 percent.

The Turkish lira touched a record-low 2.1406 per dollar today and the Borsa Istanbul 100 Index closed at the lowest since August 2012. Environment and Urban Works Minister Erdogan Bayraktar, an associate of Prime Minister Erdogan for two decades, resigned and called for the premier to step down too. Erdogan responded by reshuffling his cabinet.

Lira Drop

The lira is this month’s worst-performer in emerging Europe and Africaeven after Turkey’s central bank said Dec. 24 it would sell at least $6 billion through the end of January and make it more costly for lenders to park foreign currencies in its coffers.

Australia’s dollar slumped 0.3 percent to 88.96 U.S. cents as China’s stocks declined amid investor disappointment the government didn’t take further measures to ease a cash crunch. The Shanghai Composite Index lost 1.6 percent to 2,073.10 at the close, the lowest level since Aug. 23.

BOJ board members agreed to examine risks and adjust policy as needed, according to minutes of their Nov. 20-21 meeting released today. One member said anticipation of more easing could lead to economic instability.

Japan’s central bank is buying more than 7 trillion yen ($67 billion) of government bonds each month in an attempt to end 15 years of deflation. Twenty-seven of 35 economists surveyed by Bloomberg News this month forecast Japan’s central bank will add stimulus after March.

Japan Policy

“The fact that BOJ members are concerned that improvement in growth, jobs, and consumer prices may not be as robust as before signals they will take some kind of measures going forward,” said Takahiro Sekido, who worked at the BOJ before joining Bank of Tokyo-Mitsubishi UFJ Ltd. as a Japan strategist. “Dollar-yen could test 105 as economic data in the U.S. continue to improve.”

The dollar jumped 2 percent against the yen since Dec. 17, the day before the Fed said it plans to cut monthly asset purchases in January to $75 billion from $85 billion. Policy makers will probably reduce bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said in a Bloomberg survey published Dec. 19.

Fewer Americans than projected filed applications for unemployment benefits last week, indicating the U.S. labor market is improving. Jobless claims declined by 42,000 to 338,000 in the week ended Dec. 21, a Labor Department report showed. The median forecast of 42 economists surveyed by Bloomberg called for a drop to 345,000.

The Standard & Poor’s 500 Index closed at a record high on Dec. 24 after data on U.S. durable goods and new homes sales exceeded analyst estimates. It added 0.5 percent today.

To contact the reporters on this story: Andrea Wong in New York at awong268@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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