Yen Weakens to Two-Month Low on BOJ Easing Bets

Yen Depreciates to One-Month Low on Stock Gains, Summit Optimism
Japan’s currency slid versus all of its 16 major counterparts amid speculation the country’s central bank will boost stimulus measures on Oct. 30. Photographer: Kiyoshi Ota/Bloomberg

The yen slipped to the weakest level in almost two months versus the dollar as speculation that the Bank of Japan will boost stimulus measures sapped demand for the nation’s assets as a haven.

Japan’s currency was set for its longest run of declines against the dollar since April 2011 as Treasury two-year yields reached the highest in two months relative to Japanese peers. The euro snapped a two-day gain versus the dollar as German Chancellor Angela Merkel said the region’s debt crisis won’t be quickly solved. The krona rose to a two-week high versus the euro as Sweden’s central bank governor said there are risks in keeping interest rates low.

“The rise in U.S. bond yields is certainly consistent with a weakness in the dollar-yen,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said in a telephone interview. “That’s a dynamic that’s been relevant for price action over the last few days.”

The yen fell 0.4 percent to 79.28 per dollar at 5 p.m. New York time after touching 79.47, the weakest since Aug. 21. It hadn’t fallen on six consecutive days since the period through April 1, 2011. The Japanese currency was little changed at 103.57 per euro.

Euro Levels

The 17-nation common currency slipped 0.4 percent to $1.3067, after rising to $1.3140 yesterday, the strongest since Sept. 17.

The euro may climb to more than $1.35 before the end of this year after trading above its 200-day moving average in the past month, Miller Tabak & Co. said, citing trading patterns.

U.S. two-year note yields exceed similar maturity Japanese securities by 18 basis points, or 0.18 percentage point, close to the most since August. The U.S. two-year note yields 0.29 percent, while Japan’s two-year debt yields 0.11 percent.

Sweden’s krona appreciated 0.8 percent to 8.5782 against the euro, after rising to 8.5662, the strongest level since Oct. 5. It gained 0.4 percent to 6.5652 versus the dollar, after reaching 6.5320, the most since Sept. 28.

There are risks in keeping rates low for a long time that “can’t be ignored” as policy makers must take heed of financial stability and debt growth, Swedish central bank Governor Stefan Ingves wrote in an opinion article today in Svenska Dagbladet. The Riksbank last month predicted it would keep its benchmark interest rate at 1.25 percent over the next year and then raise rates as the global economy recovers.

Rand Swings

South Africa’s rand reversed earlier gains after reaching the strongest level in almost two weeks on rising metal prices. Data showed China’s industrial production accelerated in September, which temporarily boosted prospects for exports.

The currency fell 0.6 percent to 8.6544 per dollar after gaining as much as 0.7 percent.

In Japan, central bank board members will release updated economic projections for the 2012 and 2013 fiscal years at month-end, along with the first set of forecasts for the 12 months beginning in April 2014. At their last meeting that ended on Oct. 5, BOJ officials held off from more easing after adding to stimulus in September.

“You have a lot of people speculating on the Bank of Japan easing,” said Kiran Kowshik, London-based currency strategist at BNP Paribas SA. “The yen weakness as well is about risk sentiment and we’ve seen Japanese investors, in terms of data, have been buying more foreign bonds. You could see upward pressure on yen crosses in anticipation of BOJ easing.”

Currency Indexes

The yen weakened 4.5 percent in the past three months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 3.6 percent, the second biggest decline, while the euro rose 3.3 percent.

“The BOJ and Minister of Finance in Japan are not highly aggressive like the Fed is,” Sebastian Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “If they were doing their job in a very aggressive fashion, we would be moving higher in a vertical fashion.”

France’s President Francois Hollande called on the EU to press ahead on forming a banking union, provide economic help to countries that rein in budget deficits, and show investors that Greece will be able to stay in the monetary union if it keeps its commitments.

“We need to begin to execute these things, rapidly,” Hollande said in a joint interview published yesterday by six European newspapers. “Europe can’t afford to be late anymore.” Hollande and his 26 counterparts from other EU nations are holding a two-day summit in Brussels.

Merkel, addressing German lower-house lawmakers before the EU leaders’ meeting, proposed a European Union “solidarity” fund to bolster competitiveness in struggling member countries.

“The EU summit is unlikely to deliver any near-term, market-moving announcements but it is likely to build on the long-term framework for the Economic and Monetary Union,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, wrote today in a note to clients.

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