Yen Rises to 4-Month High Versus Euro on BOJ Policy Bets

The yen rose to a four-month high versus the euro on speculation the Bank of Japan will refrain from expanding stimulus at a meeting beginning tomorrow, diverging from the European Central Bank that added easing last week.

Japan’s currency gained versus most of its 16 major peers as BOJ Governor Haruhiko Kuroda is due to speak after the central bank decision at the conclusion of the meeting on June 13. The pound rose to the strongest in 18 months versus the euro as U.K. unemployment fell to the least in more than five years. New Zealand’s currency climbed against all of its 16 major counterparts before the Reserve Bank of New Zealand raised interest rates.

The yen is rallying on a “setback in risk appetite,” Robert Sinche, global strategist at Stamford, Connecticut-based brokerage Pierpont Securities LLC, said in a phone interview. “The markets have looked at the inflation numbers, the first-quarter growth numbers, and come to the conclusion that he BOJ would need a lot more data on the second quarter before they could justify further policy action.”

Japan’s currency gained 0.4 percent to 138.10 per euro as of 5 p.m. New York time, after reaching 137.91, the strongest level since Feb. 6. The yen appreciated 0.3 percent to 102.07 per dollar. The euro dropped 0.1 percent to $1.3532 after reaching $1.3503 on June 5, the lowest since Feb. 6.

Lira Falls

Turkey’s lira fell 1.8 percent versus the dollar, the biggest decline since January, as a news channel said militants from an al-Qaeda splinter group entered the Turkish consulate in Iraq’s second-largest city and took an unspecified number of hostages. The currency traded at 2.1166, the weakest in four days.

The Reserve Bank of New Zealand lifted its cash rate by 25 basis points to 3.25 percent, in line with the median estimate of economists in a Bloomberg survey. In March, the RBNZ became the first developed-nation central bank to increase borrowing costs this year, boosting its main interest rate in two steps to 3 percent.

The kiwi advanced 0.3 percent to 85.49 U.S. cents after strengthening 0.4 percent yesterday.

The Eonia index, a gauge of the cost for banks to borrow from each other overnight in euros, fell to 5.3 basis points, or 0.053 percentage point, on June 9, the lowest since at least 1999. The rate increased to 6 basis points today.

Euro Rates

“Penalty rates could force cash rich banks to look for alternative ways to invest their excess reserves,” Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, wrote in a report. “With euro losing its rate advantage, selling the single currency against higher-yielding currencies could be the path of least resistance.”

The euro has slipped 0.9 percent against nine peers in Bloomberg Correlation-Weighted Currency Indexes since June 5, when ECB policy makers cut the deposit rate to minus 0.1 percent, lowered the main refinancing rate to a record 0.15 percent and announced measures including targeted long-term loans.

“It makes sense that the euro is broadly weak after the ECB meeting,” Daniel Katzive, a director and head of foreign-exchange strategy, North America, in New York at BNP Paribas SA, said in a phone interview. “There’s increased interest in using the euro as a funding currency for trades into” emerging-market assets.

Chart Patterns

The euro-yen rate closed below its 200-day moving average yesterday for the first time since November 2012. That’s a bearish signal that could translate to sharper losses should it revisit its low for the year set in February, according to Citigroup Inc.

The formation on June 9 of what’s known as a bearish outside-day pattern, where the euro’s high and low versus the yen exceeded those of the previous trading day, added to Citigroup’s negative view.

Britain’s jobless rate dropped to 6.6 percent in the three months through April from 6.8 percent in the first quarter, the Office for National Statistics said in London today. Bank of England officials are divided on the amount of capacity remaining, with some suggesting that the first rate increase may be approaching.

The pound gained 0.3 percent to 80.60 pence per euro after reaching the strongest level since Dec. 11, 2012. Sterling climbed 0.2 percent to $1.6788.

BOJ Meeting

The BOJ has been buying about 7 trillion yen ($68.4 billion) of government bonds a month since April 2013 in stimulus that tends to weaken the yen. All 33 economists surveyed by Bloomberg News forecast the central bank will keep policy unchanged at the June 12-13 meeting. Nine percent of the economists polled June 3 to 6 by Bloomberg expect additional monetary stimulus in July, down from 38 percent in the previous survey.

“There is a diminishing expectation that we get further easing from the BOJ generally beyond just this week in the meeting,” Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada in London, said in a phone interview. “That probably is supporting the yen.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Paul Cox

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