Yen Declines to 27-Month Low as Abe Pushes for Stimulus

Yen Declines to 20-Month Low as Abe Approved as Prime Minister
A dealer works in front of a monitor displaying the exchange rate of the yen against the U.S. dollar at a foreign exchange brokerage in Tokyo. Photographer: Akio Kon/Bloomberg

The yen fell against the dollar to the lowest level since September 2010 as Japan’s Prime Minister Shinzo Abe said he would push for “bold monetary easing.”

The Japanese currency slid versus all its major peers as minutes of the Bank of Japan’s November meeting showed that a board member suggested conducting open-ended asset purchases. Brazil’s real gained the most among major currencies as the central bank intervened to stem declines. The Dollar Index fell as House Speaker John Boehner said the Senate must act on legislation to avert the so-called fiscal cliff.

“We’ve seen the new government in Japan, for months now really, pledge to the market that they will adopt a very expansionary fiscal strategy and exert pressure on the Bank of Japan to continue easing monetary policy,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said today in a telephone interview. “That’s certainly negative for the yen and it represents a fundamental shift in the direction of the yen and is likely to result in long-term secular declines for the yen into 2013.”

The Japanese currency depreciated 1 percent to 85.63 per dollar at 5:02 p.m. New York time, after touching the weakest level since Sept. 21, 2010. It depreciated 1.3 percent to 113.24 per euro, reaching the least since August 2011. The European currency added 0.3 percent to $1.3224.

Markets in Canada, Australia and the U.K. were shut for a holiday.

Yearly Update

The yen has tumbled 13.7 percent this year, the biggest drop among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is the second-worst performer with a 2.8 percent slide, while the euro has lost 0.6 percent.

The losses for the Japanese currency have accelerated in December, with it declining 3.7 percent versus the dollar, bringing its quarter-to-date loss to 8.9 percent. The real is the best-performer this month against the 16 major currencies tracked by Bloomberg, advancing 4.2 percent versus the dollar. That pares its loss since the end of September to 1.1 percent.

“Using the central bank to weaken the currency is viewed as win-win in a deflationary economy,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “He obviously feels he has a mandate and so far he has been going further, faster in advocating BOJ ease than was expected.”

The yen’s slide accelerated today after the currency hit 85 per dollar, triggering stop-loss orders, according to Yousuke Hosokawa, the foreign-exchange head in Tokyo at the marketing unit of Sumitomo Mitsui Trust Bank Ltd. A stop-loss order is an automatic instruction to buy or sell a currency at a certain level to limit losses.

A further decline in the yen against the euro and dollar may be limited as the 14-day relative strength index for both pairs remains below the 30 level, which indicates price moves are extreme and may be due for a rebound. The gauge was 22.8 versus the euro and 21.3 against the greenback.

Real Strength

Brazil’s real gained against all its major counterparts, rising 1.5 percent to 2.0491 per dollar.

The currency rose to a seven-week high as the central bank sold 27,500 of 40,000 currency swaps at its first auction today and 9,500 out of 40,000 at a second offering. Swap rates dropped as speculation eased that policy makers will boost the benchmark lending rate, known as the Selic, to cap consumer prices.

President Barack Obama and Congress plan to return to Washington tomorrow after an abbreviated Christmas holiday.

The Senate must act to avert the so-called cliff, and then the House will consider “whatever the Senate can pass,” Ohio Republican Boehner said in a statement. “The lines of communication remain open, and we will continue to work with our colleagues.”

The Dollar Index, which tracks the currency against those of six major trading partners, fell 0.1 percent to 79.612.

Abe said in a speech in Tokyo today he would carry out a flexible fiscal policy. Taro Aso was named finance chief today. During his 12 months as prime minister through September 2009, the one-time Olympian compiled three extra budgets worth about 20 trillion yen, abandoned a target to balance the budget by March 2012 and distributed a 12,000 yen-per-person cash handout.

BOJ Policy

An unnamed BOJ board member said that an option would be to “clearly present” in a policy statement that the central bank would continue monetary easing, including asset purchases, “without setting any time frame” until 1 percent inflation is achieved, the minutes showed. The BOJ’s 76 trillion-yen ($890 billion) program that buys securities ranging from government bonds to stock funds will expire at the end of next year.

“A dovish message came through loud and clear,” Gareth Berry and Geoffrey Yu, foreign-exchange strategists at UBS AG, wrote in a research note today about the minutes. “It would appear that the sands are shifting not just in Japan’s political arena, but amongst BOJ policy board members as well.”

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