Yen Drops Versus Major Peers Before Central Bank Meetings

Yen Stays Lower Against Peers Before BOJ Begins Policy Meeting
Data over the past week have added to the case that the BOJ will need to expand stimulus to boost growth and achieve its 1 percent inflation goal. Photographer: Tomohiro Ohsumi/Bloomberg

The yen weakened for a sixth day against the euro on speculation central banks around the world will take more steps to avert an economic slowdown, curbing demand for refuge assets.

Japan’s currency dropped to a two-week low versus the dollar as the Bank of Japan started a two-day meeting after expanding stimulus last month. The euro appreciated against 13 of its 16 major peers before European Central Bank policy makers convene to discuss ways to contain the region’s debt crisis. The JPMorgan G7 Volatility Index declined to the lowest level in almost five years.

“I expect the BOJ to bolster aggressive monetary easing” when it wants to halt declines in stocks and stop the yen rising versus the dollar, said Kengo Suzuki, a foreign-exchange strategist at Mizuho Securities in Tokyo. “Such a move would keep the yen in check.”

The yen dropped 0.5 percent to 101.76 per euro at 8:46 a.m. in London after falling to 101.82, the weakest since Sept. 24. Japan’s currency declined 0.2 percent to 78.61 per dollar after sliding to 78.72, the lowest since Sept. 19. The euro advanced 0.3 percent to $1.2944.

Reports over the past week have added to the case for the BOJ to expand stimulus to boost growth and achieve its 1 percent inflation goal. Consumer prices in August matched the steepest decline in 16 months and the nation’s biggest manufacturers grew more pessimistic last quarter.

Asset Purchases

The BOJ increased its asset-purchase program by 10 trillion yen to 55 trillion yen at its previous meeting on Sept. 19, saying the economy’s pick-up was slowing while prices were flat.

The yen dropped 1.7 percent in the past month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 1.4 percent and the euro strengthened 1.9 percent.

Price swings in major currencies waned before the central banks in Europe and the U.K. also hold policy meetings. The JPMorgan G7 Volatility Index dropped 0.04 to 7.72 percent, the lowest level since October 2007.

The ECB will keep its benchmark interest rate at a record-low 0.75 percent today, according to Bloomberg News survey of economists. President Mario Draghi unveiled a program of unlimited bond purchases last month to ease borrowing costs for debt-ridden nations, spurring a rally in the shared currency.

Spain will sell two-, three- and five-year notes today as investors weigh whether the nation will ask for an international bailout. Prime Minister Mariano Rajoy this week denied he has immediate plans to seek assistance.

Markets ‘Disappointed’

“The markets are disappointed that Spain may not seek aid soon,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “That’s leading to a little bit of euro selling.”

The Bank of England will leave its asset-purchase target at 375 billion pounds at its monthly gathering today, according to all 40 economist forecasts compiled by Bloomberg. The central bank will also leave its main interest rate at a record-low 0.5 percent, according to all 50 estimates in a separate survey.

The pound was little changed at 80.30 pence per euro, and rose 0.2 percent to $1.6107.

The Federal Reserve will today publish minutes of its Sept. 12-13 meeting, when it announced a third round of so-called quantitative easing. The central bank will maintain record stimulus even after economic expansion gains strength, Chairman Ben S. Bernanke said this week.

A Labor Department report tomorrow will show the U.S. unemployment rate rose to 8.2 percent in September from 8.1 percent the previous month, economists in a Bloomberg survey forecast. The jobless rate has stayed above 8 percent since February 2009. U.S. payrolls increased by 115,000 last month, according to a separate Bloomberg survey.

The Fed minutes “may provide a bit of insight as to whether the Fed discussed the continuation of asset purchases at year-end,” Mary Nicola, a New York-based currency strategist at BNP Paribas SA, wrote in a note to clients yesterday. “This could drive the dollar lower as the market starts to see that outright Treasury purchases are in the pipeline.”

-- With assistance from Masaki Kondo in Singapore and Mika Otsuka in New York. Editors: Nicholas Reynolds, Mark McCord

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