The yen weakened to a seven-month low against the dollar as the highest yield premium on Treasuries when compared with Japanese debt since August damped the appeal of yen-denominated assets.
The yen fell for a fifth day, the most since April, after a report showed sales of previously owned U.S. homes rose to the highest in almost two years, bolstering expectations for growth in North America. It has weakened 3.7 percent since the Bank of Japan on Feb. 14 unexpectedly expanded its asset-purchase program. Norway’s krone rallied against all its major counterparts as investors pared bets the central bank would cut interest rates after unemployment unexpectedly declined.
“Given the movement we’ve seen in dollar-yen over the past couple of years, this move is pretty significant,” said Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities Inc. in Stamford, Connecticut. “There is a possibility, not a certainty, that the BOJ is doing stealth intervention now that we know that they did it before.”
The yen dropped 0.7 percent to 80.29 per dollar at 5 p.m. New York time, after falling to 80.40, the weakest level since July 11. Japan’s currency slid 0.8 percent to 106.38 per euro, after sliding to 106.57 yen, the lowest since Nov. 14. The euro rose 0.1 percent to $1.3249.
The spread between U.S. and Japanese two-year notes expanded to 19.05 basis points yesterday, the most since Aug. 1, according to closing-market data compiled by Bloomberg. The difference was 18.6 basis points today.
The krone, this month’s best performing major currency against the dollar and the euro, strengthened 0.7 percent to 7.4865 per euro and 0.8 percent to 5.6506 per dollar.
Traders now expect a 0.1 percentage point interest rate reduction from Norges Bank in the next 12 months, compared to 0.23 percent reduction a week ago, according to a Credit Suisse Index based on swaps.
A report today showed Norway’s unemployment fell to 3.3 percent in the December quarter, when most economists surveyed by Bloomberg had predicted no change from 3.4 percent in the prior period.
Australia’s dollar fell 0.2 percent to $1.0638 after the resignation of Foreign Minister Kevin Rudd, the former prime minister who was ousted as leader in 2010. The move was announced during a trip to Washington and opens the door for Rudd to contest for the top post again.
Futures traders pared bets the yen would appreciate versus the dollar versus those it would weaken by 25,712 contracts in the week ended Feb. 14. The so-called net-longs totaled 29,459 compared to 55,171 the previous week.
Borrowing in yen to buy higher-yielding currencies such as Brazil’s real or Mexico’s peso returned 2 percent month-to-date according to the UBS V24 Carry Index.
The BOJ expanded its asset-purchase program to 30 trillion yen ($374 billion) from 20 trillion, with 19 trillion yen set aside for government bonds. The central bank also said it will target 1 percent inflation “for the time being.” Consumer prices fell at a 0.2 percent annual rate in December, government data show.
BOJ Governor Masaaki Shirakawa has told Japanese lawmakers that policy makers set a price target to show the central bank’s resolve and it will take further steps to end deflation.
“Everyone was really long yen early this year and now people are selling their long positions and that is compounding the move,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “A lot of participants have been waiting impatiently to be going long dollar-yen.” A long is a bet an asset will appreciate, a short a wager it will depreciate.
The Dollar Index, which tracks the U.S. currency against those of six major trading partners, climbed 0.2 percent to 79.198 after dropping 0.4 percent in the previous two days.
Sales of previously owned homes in the U.S. rose 4.3 percent in January to a 4.57 million annual rate, the highest level since May 2010, according to a Bloomberg News survey before the National Association of Realtors’ report today.
UBS AG raised its forecasts for the dollar versus the yen, according to an e-mailed report. Nomura Holdings Inc. raised its first-quarter dollar-yen forecast to 79 from 75 today.
“We now target a move to 85 by the end of this year and 90 by the end of 2013,” analysts including Mansoor Mohi-uddin in Singapore wrote in the note. Previous projections were 80 yen and 85 yen respectively, according to the report.
The median estimate of 49 strategists is 80 yen for the fourth quarter of 2012. The forecast has been stable since Oct. 28.
Fitch Cuts Greece
The yen has depreciated 7.2 percent in the past three months, the biggest decline among 10 developed nation peers tracked by Bloomberg Correlation Weighted Indexes. The dollar weakened 3.2 percent, and the euro dropped 4 percent.
The euro held gains against the yen after Fitch Ratings cut Greece’s credit rating to C from CCC. A default by the nation is likely in the near term, the ratings company said in a statement today.
“We’ve seen some decent rallies in the euro crosses, and an unwinding of euro shorts is what is driving the market moves at the moment,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “It’s not necessarily a euro-dollar story going on right now.”
The 17-nation currency has strengthened against all but three of its major counterparts over the past week after European Union finance ministers awarded 130 billion euros ($172 billion) in aid to Greece and reached an accord for greater debt relief from investor representatives.