Yen Drops to Three-Month Low as Bank of Japan Boosts Stimulus

The yen fell to a three-month low versus the dollar after the Bank of Japan said it would increase the size of its asset-purchase fund, damping demand for the Asian nation’s currency.

The euro pared loses against its U.S. counterpart after Reuters reported that Greece’s New Democracy party will commit to the austerity measures needed to qualify the country for international aid. The Bank of Japan unexpectedly added 10 trillion yen ($128 billion) to an asset-purchase program and set a 1 percent goal for inflation to boost the economy. The dollar gained on refuge demand after U.S. retail sales climbed more slowly than forecast.

“The Bank of Japan caught the markets by surprise,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “I don’t think anyone was expecting them to move forward with additional purchases. Right now, you don’t really want to be fighting the central bank, but it’s a move you’re going to want to fade.”

The yen dropped 1.2 percent to 78.44 per dollar at 5 p.m. in New York after reaching 78.54, the weakest level since November. It lost 0.7 percent to 103.02 per euro. The shared currency dropped 0.4 percent to $1.3134 after declining as much as 0.8 percent.

Canada’s dollar gained against all of its major counterparts, rising 1.2 percent to 78.51 yen, as crude oil touched a three-week high before paring gains.

Chile, Norway

Chile’s peso declined for a third day, dipping 1 percent to 484.65 per dollar, on falling copper prices before the central bank kept its benchmark interest rate unchanged at 5 percent, as forecast by 12 of 20 economists surveyed by Bloomberg. Faster-than-expected growth at home and abroad persuaded policy makers to pause after last month’s surprise reduction in borrowing costs.

A surge in Norway’s krone may prompt the central bank to talk down the currency’s strength as early as this week as policy makers renew their efforts to support exports. The krone rose 0.2 percent against the euro to 7.5288 and touched 7.5219, its highest since Sept. 9. It has gained about 2.8 percent against the common currency so far this year.

Greece’s New Democracy leader Antonis Samaras is expected to deliver a letter of commitment on Wednesday, Reuters reported citing unnamed sources.

Technical Work

The euro fell as Luxembourg Prime Minister Jean-Claude Juncker, head of the euro-region finance chiefs, said further technical work needs to be carried out by Greece and the troika of the European Commission, European Central Bank and International Monetary Fund.

Finance ministers canceled a planned meeting tomorrow in Brussels and will instead hold a teleconference to prod Greece to do more to clinch an aid package worth 130 billion euros ($170 billion) along with about 100 billion euros of debt relief from private bondholders.

Greece’s gross domestic product dropped 7 percent from a year earlier in the fourth quarter after contracting a revised 5 percent on an annual basis in the third quarter, the Hellenic Statistical Authority said in an e-mailed statement today.

Japan’s currency fell against all of its most-traded counterparts after the central bank increased its asset-purchase fund to 30 trillion yen, expanding economic stimulus measures for the first time since October. The BOJ also said it will target 1 percent inflation “for the time being.”

Japan Intervention

The yen reached its lowest level against the dollar since Nov. 1, when Japan was in the midst of conducting 1.02 trillion yen worth of unannounced intervention. The Finance Ministry released data last week showing Japan sold yen in the currency market during the first four days of November, after selling a record 8.07 trillion yen on Oct. 31, when the yen climbed to a post-World War II high of 75.35 against the dollar.

Japanese lawmakers had urged extra efforts to counter deflation after the Federal Reserve adopted a 2 percent inflation target and the European Central Bank expanded its balance sheet. The Fed said at its meeting Jan. 25 that it would keep its interest rate at a record low of zero to 0.25 percent through at least 2014.

The yen reached a three-month high of 76.03 per dollar Feb. 1, within one yen of its postwar record.

The yen may weaken to 80 versus the U.S. dollar for the first time in more than six months after breaking above the pair’s 200-day moving average, according to technical analysis by JPMorgan Chase & Co.

The dollar rose against all but one of the 16 major currencies tracked by Bloomberg. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 0.3 percent to 79.403.

‘Flight to Safety’

Retail sales increased 0.4 percent, following little change in December that was initially reported as a 0.1 percent increase, Commerce Department figures showed today. Last month’s advance was half the median forecast of economists surveyed by Bloomberg News, reflecting an unexpected drop at auto dealers.

“The retail sales data support our view that the economy is not doing as well as most think it is,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York. “There could be some elements of that creeping back in, a bit of risk-off and flight to safety.”

Prices of goods imported into the U.S. rose 0.3 percent in January, led by higher costs for automobiles and petroleum, a report from Labor Department also showed today. It was the second increase in the past six months, indicating little pressure on prices from overseas.

Italy, Spain

The euro rose earlier as Italy sold 6 billion euros ($7.9 billion) of debt, meeting its target as its three-year borrowing costs fell to 3.41 percent, the lowest since March. Spain sold 12-month bills at an average rate of 1.899 percent, the least since October 2010, according to data compiled by Bloomberg. Belgium, Greece and the Netherlands also sold debt today.

Moody’s downgraded Italy, Spain and Portugal, and said it may strip France, the U.K. and Austria of their top Aaa ratings.

The euro has declined 4.8 percent in the past six months, the second-worst performance after the Swiss franc among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 5.4 percent, and the yen rose 1.4 percent.

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