Yen Drops Versus Peers on Prospects BOJ to Add Stimulus

Euro Falls as Confidence Forecast to Drop Amid Contagion Concern
The European currency fell 0.1 percent to $1.2770 as of 8:43 a.m. in Tokyo after dropping 1.1 percent last week. Photographer: Simon Dawson/Bloomberg

The yen declined against most of its major counterparts on speculation the Bank of Japan will add to stimulus measures this week to support growth and weaken the nation’s foreign-exchange rates.

The euro erased losses against the dollar as German Finance Minister Wolfgang Schaeuble said Germany and France will do “everything necessary” to keep Greece in the shared currency. Brazil’s real sank as Finance Minister Guido Mantega said a weaker currency is helping to reignite the economy. India’s rupee plunged to a record against the dollar, spurring the central bank to impose curbs on trading in the foreign-currency futures market.

“If they do surprise and expand their asset-purchase program again, I think that the reaction will be relatively subdued and short lasting,” Andrew Cox, a currency strategist at Citigroup Inc. in New York, said of Japan’s central bank. “The broad expectation is for an unchanged policy stance from the BOJ this week.”

The yen fell 0.7 percent to 101.65 per euro at 5 p.m. in New York after dropping 0.3 percent on May 18. Japan’s currency declined 0.4 percent to 79.31 per dollar. The euro rose 0.3 percent to $1.2818 after earlier depreciating more than 0.4 percent. It slid 1.1 percent last week and reached $1.2642 on May 18, the least since Jan. 16.

Real, Rupee

Brazil’s real is the worst performing major currency this year and has declined 8.6 percent against the dollar. Mantega said GDP growth this year will be higher than the 2.7 percent expansion in 2011, adding the economy will expand at a 4.5 percent annual pace in the second half.

The Brazil’s real fell 0.9 percent against the dollar to 2.0419. It touched a three-year low on May 18.

India’s central bank cut the amount of overseas income companies can hold in foreign currency this month to 50 percent from 100 percent, in a bid to boost dollar inflows and stem the rupee’s slide.

The rupee declined 1.1 percent to 55.0350 per dollar, touching an all-time low of 55.0550, and has fallen 3.6 percent this year.

The implied volatility of three-month options on Group of Seven nations’ currencies fell for the first time in six days, according to a JPMorgan Chase & Co. index. The measure dropped to 11.02 percent, after reaching 11.59 percent on May 18, the highest level since Jan. 6.

Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits.

Rand Breaks Streak

South Africa’s rand rose against most of its major counterparts, advancing 1.4 percent to 8.2251 per dollar, breaking a nine-day decline versus the dollar that was longest losing streak for the currency since June 2008.

The Standard & Poor’s 500 Index rose 1.6 percent and the MSCI World Index advanced 1.1 percent. The S&P GSCI Index of 24 raw materials gained 0.7 percent.

BOJ officials will gather for a two-day meeting starting tomorrow. The central bank expanded its asset-purchase program in February and April. Last week, two bond-buying operations failed to attract the central bank’s target for sell offers.

“As long as dollar-yen remains above 76 or 77, we won’t see anything else besides verbal intervention,” said Kathy Lien, director of currency research with online currency trader GFT Forex, in New York.

The yen has strengthened more than 5 percent against the dollar in the past two months, sparking Vice Finance Minister for International Affairs Nakao to say that the recent gain is a “speculative excessive movement” and they would “take action if necessary.”

Technical Indicators

There is support for dollar-yen at the 200-day moving average of 78.52, according to date compiled by Bloomberg. While technical indicators show the greenback is oversold against the Japanese currency, there could be further appreciation spurred by events among euro member states, according to Bloomberg analyst TJ Marta.

The yen typically strengthens in times of political, financial and economic turmoil. Japan’s historical trade surplus makes the currency attractive because it means the nation doesn’t have to rely on overseas lenders.

The yen has weakened 2.6 percent this year against the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has gained 0.8 percent and the pound is the best performer with a 2.9 percent advance.

‘Close Cooperation’

Germany’s Schaeuble met with his newly installed French counterpart, Pierre Moscovici, in Berlin today as European Union leaders prepare for a summit meeting in Brussels on May 23.

“We need close cooperation during this critical time,” Schaeuble said today in Berlin alongside Moscovici. “I’m sure we can do that exactly as we have in the past.” Moscovici, who said that Schaeuble was the first official he called as finance minister, said that Franco-German relations will “continue independent of political or governmental change.”

Hedge funds and other large speculators boosted wagers to a record that the euro will weaken against the dollar amid speculation Greece will exit the currency bloc.

Bearish bets, so-called net shorts, totaled 173,869 in the week ended May 15, according to the Commodity Futures Trading Commission. That was up from 143,984 a week earlier and compares with a previous record of 171,347 reached on Jan. 27.

“It’s pretty clear the EU is starting to shift its focus over to growth and that is going to come through,” said GFT’s Lien.

An index of consumer sentiment in Europe dropped to minus 20.5 this month from minus 19.9 in April, a Bloomberg survey of economists showed before the European Commission reports the figure tomorrow. That would be the lowest level since January.

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