Yen Falls Most in a Month on BOJ Stimulus Expectations

The yen weakened the most in a month against the dollar as the Bank of Japan started a two-day meeting amid speculation it will boost stimulus measures to spur flagging growth.

Japan’s currency fell versus all its 16 major peers after Fitch Ratings cut the nation’s credit ranking, saying it isn’t acting quickly enough to tackle its public debt burden. The pound weakened as the International Monetary Fund said the U.K. needs more monetary easing. The euro fell the most in two weeks against the dollar before the leaders of Germany and France meet at the European summit in Brussels tomorrow.

“While there is no strong consensus about a move at this meeting, the market is open-minded about ongoing monetary-policy easing in the weeks and months ahead,” Shahab Jalinoos, a senior currency strategist for UBS AG in Stamford, Connecticut, said of the Japan’s central bank. “We’re now seeing a track record of the market getting nervous about the yen before BOJ meetings.”

The yen declined 1 percent to 80.12 per dollar at 3:17 p.m. in New York, the biggest intraday drop since April 3. Japan’s currency weakened 0.2 percent to 101.89 per euro. The euro depreciated 0.8 percent to $1.2719, the steepest intraday slide since May 7. It hit $1.2642 on May 18, the weakest level since Jan. 16.

Sterling fell 0.4 percent to $1.5772. It gained 0.4 percent to 80.63 pence per euro.

‘Looks Leisurely’

JPMorgan Chase & Co. strengthened its dollar forecasts today against all currencies except the yen, citing Greece’s “lurch” toward an exit from the shared currency and economic slowdowns in China and the U.S. The euro will fall to $1.22 in the second quarter from a $1.34 estimate as of May 11. Canada’s dollar will weaken to C$1.04 in that time instead of 98 cents per U.S. dollar and Australia’s dollar will fall to 96 U.S. cents compared to $1.08. The dollar may weaken to 78 yen at the end of the second quarter.

Fitch lowered Japan’s long-term, foreign-currency ranking to A+ from AA, and cut the local-currency grade to A+ from AA-, the company said in a statement. The outlooks on both are negative, it said.

“The country’s fiscal consolidation plan looks leisurely relative even to other fiscally challenged, high-income countries,” said Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch in Hong Kong.

The yen has declined 3.1 percent this year, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 1.4 percent and the euro weakened 0.7 percent.

Euro Weakens

Japanese Finance Minister Jun Azumi told reporters today he expects the BOJ to take appropriate steps in a timely manner and said he regards highly the steps taken by the central bank since February. The BOJ expanded its asset-purchase program in February and April.

The euro dropped toward a four-month low against the greenback after the Organization for Economic Cooperation and Development said Europe’s debt crisis risks spiraling.

Gross domestic product in the euro region will shrink 0.1 percent this year and expand 0.9 percent in 2013 instead of posting growth of 0.2 percent and 1.4 percent as predicted last November, the Paris-based organization said.

German Chancellor Angela Merkel said yesterday she won’t shy away from disagreeing with French President Francois Hollande at the European Union summit beginning tomorrow.

Merkel, Hollande

“Everyone is waiting to see how Merkel and Hollande get along and whether he changes some of his pre-election rhetoric,” said Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal. “What is key going forward, is France going to toe the line and support Germany?”

The pound snapped a two-day gain versus the dollar as the IMF said more stimulus such as quantitative easing, or QE, was needed to boost the economy. A U.K. government report showed inflation slowed in April more than economists forecast.

Norway’s krone rose for a second day against the euro after a report showed the economy expanded more than analysts forecast in the first quarter.

The krone appreciated 0.4 percent to 7.5842 per euro after rising 0.2 percent yesterday.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE