The yen fell against the dollar, erasing its earlier advance to a four-month high, after the Bank of Japan pumped record funds into an economy reeling from the nation’s strongest earthquake.
The yen declined versus 13 of its 16 major counterparts as the central bank said it will add 15 trillion yen ($183 billion) to the financial system and increase its asset-purchase program. The euro rose for a second day after European leaders agreed to widen the scope of a rescue fund aimed at resolving the sovereign-debt crisis and cut the cost of loans to Greece.
“The BOJ is providing ample liquidity,” said Koji Fukaya, chief currency strategist at Credit Suisse Group AG in Tokyo. “The disaster may slow down the entire economy in Japan, and the bank will have to keep its monetary policy easing. That’s definitely yen-negative.”
The yen fell to 82.12 per dollar as of 6:40 a.m. in London from 81.84 in New York last week after earlier touching 80.62, the strongest since Nov. 9. It declined 0.6 percent to 114.45 per euro. Europe’s common currency climbed 0.3 percent to $1.3938 from last week in New York.
The emergency measure represents the Japanese central bank’s first same-day repurchase operations since May when it added funds to help stabilize markets amid Greece’s debt crisis.
BOJ Governor Masaaki Shirakawa and his board also doubled the facility that buys assets from government bonds to exchange-traded funds to 10 trillion yen. Besides the 15 trillion yen of emergency funds deployed, the central bank offered to buy 3 trillion yen of government bonds from lenders in repurchase agreements starting March 16.
The BOJ kept its benchmark interest rate at a range of zero to 0.1 percent. Borrowing costs were already cut near zero last year as officials sought to revive growth and end deflation. Finance Minister Yoshihiko Noda said earlier today that he’s closely watching the foreign exchange, stock and Japanese bond markets.
Japan’s currency advanced earlier as stocks slid and on prospects domestic investors will buy back yen to pay for damage caused by the disaster. The 8.9-magnitude temblor on March 11 and subsequent tsunami may have killed 10,000 in Miyagi prefecture north of Tokyo, according to local police.
“We’re expecting dollar-yen to stay very heavy for the next few weeks on the back of this tragedy,” said Gareth Berry, a Singapore-based currency strategist at UBS AG. “When Japanese investors turn risk-averse they will repatriate and buy yen with the proceeds of their overseas investments.”
Asian stocks dropped, with the Nikkei 225 Stock Average slumping 6.2 percent.
Europe’s common currency advanced after euro-area leaders negotiated an accord to allow primary-market bond purchases that will offer a lifeline to aid recipients in return for austerity commitments. The agreement broke a deadlock as policy makers sought to extinguish a crisis that has raged for more than a year and forced Greece and Ireland to seek financial aid.
Leaders will allow the facility to spend its full 440 billion-euro ($613 billion) capacity, removing restrictions that would have capped outlays at about 250 billion euros, though it won’t be used to finance bond buybacks for debt-strapped states. A final agreement is slated for a summit on March 24-25.
“The European accord is quite significant and a better outcome than the market was expecting so that will be a positive for the euro,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “With the ECB looking to hike rates in April the euro could be ripe to break that key $1.40 level in the near-term.”
The European Central Bank’s governing council is scheduled to meet on March 17.
Australia’s dollar dropped against 15 of its 16 major counterparts as traders cut bets the Reserve Bank of Australia will raise interest rates over the next year.
The RBA will boost its target rate by 17 basis points over the next 12 months, down from a prediction for 36 basis-points of increases a month ago, a Credit Suisse AG index showed.
“Markets are adjusting their rate-hike expectations downward,” said John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., the nation’s largest lender. “When you get risk aversion you tend to see some buying of bonds as well. There is some negative perception to begin with as to how Japan’s economic situation in the next few months might affect Australia.”
Australia’s dollar depreciated to $1.0082 from $1.0138. The currency dropped 0.2 percent to 82.80 yen, after earlier declining to 81.47, the lowest since Jan. 31.