The yen rose against most of its 16 major peers before the Bank of Japan starts a two-day meeting tomorrow as investors weighed whether it will follow the Federal Reserve in expanding monetary easing.
The Dollar Index was 0.2 percent from a six-month low before Fed Bank of Chicago President Charles Evans and New York Fed chief William C. Dudley speak tomorrow. The U.S. central bank on Sept. 13 decided to buy $40 billion a month of mortgage debt to bolster the labor market. Australia’s dollar fell against most of its counterparts as territorial and trade disputes involving China damped risk appetite among investors.
“What the Fed has done increases the pressure that was already evident on the Bank of Japan politically to take further action against yen strength,” said Ray Attrill, global co-head of foreign- exchange strategy at National Australia Bank Ltd. in Sydney. If the BOJ meeting “passes off without any new policy initiatives on Wednesday, then I would expect to see dollar-yen probably back down to the lows that we saw last week.”
The yen was at 102.81 per euro as of 7:30 a.m. in London after falling 3.1 percent in the past four trading days to 102.93. It was little changed at 78.29 per dollar after reaching 77.13 on Sept. 13, the strongest since Feb. 9. The euro fetched $1.3131 from $1.3130.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed at 78.813 today. It retreated to 78.601 on Sept. 14, the lowest since Feb. 29.
The Fed’s Evans, who doesn’t vote this year on monetary policy, urged the central bank on Aug. 27 to begin a third round of bond buying. Dudley voted for the Fed’s Sept. 13 decision on debt purchases that follow two rounds of a $2.3 trillion quantitative-easing program from 2008 to 2011
“The prevailing sentiment is that the U.S. dollar is going to remain weak,” said NAB’s Attrill.
BOJ Governor Masaaki Shirakawa said on Sept. 6 that the yen’s appreciation causes a decline in Japan’s exports and that its negative effect is “dominant.” Japan’s markets are closed today for a national holiday.
The yen has risen 6 percent in the past six months, the biggest gainer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has fallen 1.2 percent during the period, while the euro depreciated 1.6 percent.
The Australian dollar weakened against most of its 16 most-traded counterparts. Demonstrators took to the streets in a dozen cities across China, Australia’s biggest trading partner, calling for Chinese sovereignty over islands that are also claimed by Japan.
Tensions escalated after Japan said last week it would purchase the territory from a private Japanese owner, prompting China to dispatch government vessels near the islands known as Senkaku in Japanese and Diaoyu in Chinese. Japan’s foreign ministry said yesterday that Shinichi Nishimiya died of an unspecified illness, five days after his appointment as an ambassador to China.
“Geopolitical tensions between China and Japan will not be good for the economy and trade,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s room for selling the Aussie back again.”
The U.S. will announce a trade complaint against China today, alleging impermissible subsidies of auto- and auto-parts exports, according to an Obama administration official who asked to speak on condition of anonymity in advance of the public announcement.
Australia’s currency lost 0.2 percent to $1.0533 and dropped 0.3 percent to 82.45 yen.
The euro snapped a four-day advance versus the yen before a German report tomorrow that may show investor confidence remains weak in Europe’s biggest economy.
The ZEW Center for European Economic Research is forecast to say its German index of investor and analyst expectations, which aims to predict economic developments six months in advance, was minus 20 in September, according to a Bloomberg News survey of economists. The gauge slid to minus 25.5 last month, the lowest this year.
“I don’t think economic growth is suddenly going to be an offset to all the budgetary problems that we’ve got” in the countries that use the euro, said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk management company. “There’ll be an opportunity for very profitable shorts in euro-dollar at some point over the next two to three weeks,” he said, referring to bets on a decline.
The Dollar Index may pause its decline this week as it’s entering an “important” support zone, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co, wrote yesterday in a research note to clients. This zone includes the 78.398 level that is the 50 percent retracement of its rise from 72.696 on May 4, 2011, to 84.100 on July 24, according to O’Connor. It also includes the May 1 low of 78.603.