Yen, Real Tumble on Prospects of Action by Central Banks

The yen dropped for a second day against most of its major counterparts after the Bank of Japan suggested more stimulus may be needed even as global economic growth accelerates.

Brazil’s real slid amid bets the central bank will cut interest rates by 75 basis points today. The dollar reached a one-week high versus the yen as Bank of Japan Deputy Governor Kiyohiko Nishimura said policy makers are ready to implement additional easing. Canada’s dollar climbed against commodity-exporter peers on higher growth forecasts, while the pound rose after policy maker Adam Posen ended a push for more stimulus.

“It hasn’t been risk-on, risk-off the past couple of days as we’ve gotten to see some fundamental divergence; just look at the Canadian dollar pulling away on the crosses,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York, referring to trades not involving the U.S. dollar. “Stronger growth means the yen is an underperformer, provided financial markets are reasonably steady.”

The yen declined 0.5 percent to 106.63 per euro at 5 p.m. New York time after falling 0.4 percent yesterday. Japan’s currency depreciated 0.5 percent to 81.26 per dollar and touched 81.57, the weakest level since April 10. The euro was little changed at $1.3123.

The Japanese currency fell the most against the pound after Nishimura said it’s vital to support upward momentum toward an economic recovery. The BOJ is “committed to implementing additional easing measures, if deemed necessary,” he said in a speech in Okayama, western Japan.

Asset-Purchase Fund

Nishimura’s comments fueled speculation the central bank will expand its asset-purchase fund for the second time in three months at its April 27 meeting.

The yen was the biggest loser over the past three months among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes, dropping 6.7 percent. The dollar fell 1.1 percent, while the euro gained 0.2 percent.

Brazil’s real tumbled 0.9 percent to 1.8786 per dollar and touched 1.8839, the weakest level this year, as investors speculated policy makers may keep cutting the benchmark rate at today’s policy meeting.

Traders are speculating central bank President Alexandre Tombini will reduce the rate by 0.75 percentage point, to 9 percent, according to futures yields.

Bank of Canada

The Bank of Canada said today in its Monetary Policy Report that growth will be stronger than it forecast earlier as diminished risks from Europe and the U.S. boost consumer and business confidence.

“Every central bank is starting to look at their policy, looking through their base-case scenario for growth rather than the risk-case scenario because issues in Europe have been dramatically reduced,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York.

Canada’s policy makers kept their benchmark interest rate at 1 percent yesterday for a 13th meeting yesterday while saying that a policy-rate increase “may become appropriate” as the economy recovers.

Trading in Canadian interest-rate futures rose to a record yesterday. The daily volume of Canadian bankers’ acceptance contracts, used by money managers to speculate and hedge against interest-rate fluctuations, was 302,371, according to data compiled by Bloomberg.

The Canadian currency, nicknamed the loonie, strengthened 0.4 percent to 81.98 yen. It gained 0.5 percent to 80.88 cents per New Zealand dollar and advanced 0.2 percent to C$1.0267 to the Australian currency. The loonie was 0.1 percent weaker against the greenback at 99.12 cents following yesterday’s biggest intraday gain since November.

Volatility Increases

The implied volatility of three-month options for Group of Seven currencies rose for the first time in six days, breaking the longest streak of declines since December, according to the JPMorgan Volatility Index. The aggregate gauge rose 0.4 percent to 9.77 percent. The 10-year average is 10.6 percent.

Higher volatility makes investments in currencies of nations with higher benchmark rates less attractive because the risk in such trades is that market moves will erase profits.

The pound advanced for a second day versus the euro after minutes of the Bank of England’s April 4-5 meeting published today showed Posen joined the majority of the nine-member Monetary Policy Committee in seeking no change to the 325 billion-pound ($517 billion) asset-purchase target.

‘Hawkish Side’

“Our economists thought it was on the hawkish side, especially because we had uber-dove Posen hold his call for further easing,” said Mary Nicola, a New York-based currency strategist at BNP Paribas SA. “The shift from 7-2 to 8-1 is important.”

Sterling gained 0.6 percent to 81.90 per euro after appreciating to 81.74 pence, the strongest level since August 2010. The currency rose 0.6 percent to $1.6023.

Sweden’s krona strengthened after the nation’s Riksbank kept its key interest rate unchanged amid signs the largest Nordic economy will avoid a recession. The repo rate was held at 1.5 percent, after two cuts since December.

The krona advanced 0.4 percent to 8.8533 per euro and gained 0.4 percent to 6.7457 per dollar.

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