The yen fell by the most since 1995 against its developed-nation counterparts as the Bank of Japan added economic stimulus and signs Europe’s debt crisis was abating damped safety demand.
The 17-nation euro strengthened against the dollar and the yen during the quarter after regional leaders agreed on a second bailout for Greece, spurring optimism that the region was recovering from its financial crisis. Higher-yielding currencies, led by Mexico’s peso, rose on signs the U.S. economy was picking up. The U.S. is forecast to report a fourth month of job gains of more than 200,000 April 6.
“The main driving force behind the yen was the Bank of Japan embarking on a much easier monetary policy,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “The U.S. labor market has performed a bit better than a lot of people were expecting and some of the data we’ve seen lately has given us a little bit of optimism.”
The yen dropped 10.4 percent during the past three months against the currencies of nine developed-nations, according to Bloomberg Correlation-Weighted Indexes, in the biggest drop since the third quarter of 1995.
The Japanese currency lost 7.8 percent against the dollar to 82.87 and weakened 10.9 percent to 110.56 per euro in New York. The shared currency rose 3 percent to $1.3343 this quarter.
Futures traders added to bets last week that the yen will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 67,622 on March 27, compared with net shorts of 25,821 a week earlier.
Mexico’s peso rose the most against the dollar among the 16 major currencies tracked by Bloomberg, adding 8.1 percent to 12.8107 per dollar. The currency benefited from a stronger economy in the U.S., its largest trading partner, and from higher oil prices. Crude is Mexico’s largest export.
Crude oil added 4.2 percent to $102.93 a barrel and reached $110.55 earlier this month, the highest level since May 2011. The Thomson Reuters/Jefferies CRB Index of raw materials added 1 percent.
The gain in commodities prices helped South Africa’s rand and the New Zealand dollar. The rand rallied 5.2 percent to 7.6730 per dollar and the kiwi gained 5.3 percent to 81.87 U.S. cents.
The Australian dollar trailed its higher-yielding peers, rising against the U.S. dollar by the least among the major currencies. It added 1.3 percent to $1.0346.
The Aussie lagging behind other commodity currencies came as concern mounted that China’s economic growth is slowing. While the Reserve Bank of Australia will leave its interest rate at 4.25 percent at its April 3 meeting, it will cut it by 25 basis points this year, according to a Bloomberg News survey.
China lowered its economic growth target to 7.5 percent from an 8 percent goal in place since 2005, a signal that leaders are determined to cut reliance on exports and capital spending in favor of consumption.
“A quarter where markets started off very optimistic, had a run of bad data, and got very pessimistic on the world outside the U.S. and relatively optimistic on the U.S.,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, said in a Bloomberg Radio interview yesterday on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “There is a lot of pessimism, especially about China, especially with how Europe is going to evolve -- probably too much pessimism.”
The yen fell after the BOJ said last month it would expand its asset-purchase program to 30 trillion yen ($363 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.”
The yen also weakened after the nation’s current account, the widest measure of trade, turned negative in January for the first time since 2009 as Japan increased purchases of liquefied natural gas by 74 percent.
The dollar strengthened earlier this month as U.S. Treasury yields increased after positive labor-market comments by Federal Reserve Chairman Ben S. Bernanke earlier this month damped speculation the central bank will add additional monetary stimulus to boost the economy. Bernanke quashed those bets earlier this week when he signaled that further accommodative policy will be needed to buoy the economic recovery.
“Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” he said in a March 26 speech in Arlington, Virginia.
Employers in the U.S. are forecast to boost payrolls by 205,000 this month, according to the median estimate of 54 economists in a Bloomberg News survey before the Labor Department publishes the report April 6. That would mark a fourth straight month of increases of more than 200,000. The unemployment rate held at a three-year low of 8.3 percent in February.
The euro gained for the first time against the yen this quarter since the first three months of last year. Its strength came as a second bailout for Greece and a European Central Bank loan program calmed investor concern about the region’s sovereign-debt crisis.
Euro-area finance ministers in February awarded 130 billion euros ($173 billion) in aid to Greece. The nation’s debt-swap was met with a 95.7 percent participation rate among investors, easing fiscal pressure on the southern European economy.
The ECB awarded a record 529.5 billion euros in a second round of three-year loans to banks in an effort to ease lending pressures in the financial sector. The central bank meets April 4.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain was 89,129 on March 27, compared with net shorts of 82,954 a week earlier, the CFTC data show.
Implied volatility of three-month options of Group of Seven currencies fell to as low as 9.7 percent in February, compared with a high of 12.37 percent in January, according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark lending rates more attractive as there is less risk that market moves will erase profits in the trades.