The yen climbed versus most of its 16 major peers as technical indicators signaled its recent drop may have been too rapid and as a contraction in euro-area manufacturing and services damped global growth prospects.
Japan’s currency pared a weekly decline that comes as opposition leader Shinzo Abe, who is favored to become the country’s next prime minister after elections on Dec. 16, increased pressure on the Bank of Japan to add to stimulus measures that tend to weaken the yen. The euro approached its highest level in three weeks on prospects finance ministers will agree on an aid package for Greece next week, even after a report showed Europe’s common currency area slipped back into recession.
“Some investors may think the recent rally in dollar-yen has been a bit over-extended and it’s time for a bit of a correction,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “We’ve recently got confirmation of a technical recession in the euro zone, so going ahead things are still pretty uncertain.”
The yen rose 0.2 percent to 82.31 per dollar as of 6:52 a.m. in London after touching 82.84 yesterday, the weakest since April 4. It added 0.2 percent to 106.07 per euro. Europe’s shared currency was at $1.2889 from $1.2884 yesterday, when it climbed to $1.2899, the highest since Nov. 2.
Japanese markets are shut today for a holiday. U.S. markets are set to reopen after Thanksgiving yesterday.
The yen is set for a 1.2 percent drop versus its U.S. counterpart this week. The euro has advanced 1.2 percent against the greenback since Nov. 16.
The yen was supported as technical indicators signaled its recent decline may have been too rapid. The currency’s 14-day relative strength index against the dollar was at 26, its fifth-straight day below the 30 level that some traders see as a sign an asset is about to change direction. Against the euro, it was at 30.
Japan’s Abe, who heads the opposition Liberal Democratic Party, said intervention to weaken the yen is not effective, especially if the country acts alone in the currency market, the Wall Street Journal reported today, citing an interview yesterday. The BOJ should work to increase the nation’s monetary base and set a clear inflation target, the newspaper quoted Abe as saying.
Abe’s party pledged this week to achieve nominal economic growth of 3 percent and set an inflation target with the central bank of 2 percent should it win the Dec. 16 elections in the lower house of parliament.
The yen has declined 8.8 percent this year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro had the second-biggest drop, falling 2.4 percent. The dollar lost 1.7 percent.
A composite index based on a survey of purchasing managers in manufacturing and services in the euro zone was at 45.8 in November compared with 45.7 in October, London-based Markit Economics said yesterday. A report last week showed the region’s gross domestic product slipped for a second-straight period in the third quarter, the first back-to-back drop since 2009.
The euro is set for the biggest weekly advance since the period ended Oct. 5 before finance ministers from the 17-nation currency bloc hold an emergency meeting on Nov. 26 to discuss unlocking bailout funds for Greece. They failed to reach an agreement after 11-hour talks broke up on Nov. 21.
“The market expects officials to agree on a Greek package,” said Andrew Salter, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd. “I wouldn’t be surprised if the euro presses on a little further ahead.”