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Yen Advances as BOJ Delays Open-Ended Asset Buying

Jan. 22 (Bloomberg) -- The yen advanced the most in eight months against the dollar after the Bank of Japan said it will conduct open-ended asset purchases starting in January 2014, disappointing investors who expected bolder action sooner.

Japan’s currency advanced from almost its weakest versus the dollar since June 2010 as the BOJ under outgoing Governor Masaaki Shirakawa said it will buy 13 trillion yen ($146.6 billion) in assets a month next year and set a 2 percent inflation target. The New Zealand and Australian dollars rose. The euro pared a drop to the lowest in almost a week versus the dollar after German investor confidence climbed.

“They have broken new ground by raising inflation,” Shahab Jalinoos, a senior currency strategist for UBS AG in Stamford, Connecticut, said in a telephone interview. “The problem is that the actual measures they’re using to reach those targets appear too weak to actually have the effect on inflation that the target would require.”

The yen gained 1 percent to 88.71 per dollar at 5 p.m. New York time and rallied as much as 1.4 percent, the most since May 17. It reached 90.25 yesterday, the weakest since June 23, 2010. Japan’s currency added 0.9 percent to 118.18 per euro and appreciated as much as 1.7 percent. The 17-nation common currency rose 0.1 percent to $1.3322 after dropping 0.4 percent earlier to $1.3267, the weakest level since Jan. 16.

Forint Drops

Hungary’s forint weakened versus the dollar and euro as Goldman Sachs Group Inc. forecast a slump in the currency on concern a change in leadership at the central bank may bring monetary loosening via unconventional methods. The currency sank 0.3 percent to 220.75 per dollar and lost 0.4 percent to 294.09 to the euro.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six major U.S. trading partners, pared a loss after sales of existing homes in the U.S. unexpectedly dropped in December. The index was down 0.2 percent to 79.858 after dropping as much as 0.4 percent.

Existing-home sales fell 1 percent to a 4.94 million annual rate, figures from the National Association of Realtors showed. The reading was still the second-highest since November 2009. A Bloomberg survey forecast a 1.2 percent rise to 5.1 million.

The New Zealand and Australian dollars gained versus most major counterparts amid speculation the BOJ’s stimulus plan will increase global-growth prospects. The Aussie rose 0.5 percent to $1.0566. The kiwi, as New Zealand’s dollar is nicknamed, appreciated 0.6 percent to 84.10 U.S. cents.

Technical Levels

Japan’s currency may advance to a the strongest level in more than two weeks versus the dollar based on technical levels before resuming a bearish path, according to JPMorgan Chase & Co., citing trading patterns.

“The dollar-yen can correct a bit more over the short term and retrace into the 87.80-86.80 yen zone,” Niall O’Connor, a technical analyst at JPMorgan Securities, wrote in an e-mail. The yen last reached 86.80 on Jan. 3.

The Japanese currency has slid 5.5 percent over the past month versus nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after Prime Minister Shinzo Abe’s Liberal Democratic Party swept to power. Abe is pushing to boost the economy and has called for “bold monetary policy” to defeat deflation and drive the yen lower.

“The Abe administration painted the Bank of Japan in a box with the 2 percent inflation target,” Greg Anderson, New York-based head of Group 10 currency strategy at Citigroup Inc., said today on Bloomberg Television’s “Lunch Money” in an interview. “The BOJ’s way of resisting was pushing asset purchases off until 2014.”

BOJ Decision

Shirakawa and six of nine BOJ board members voted for a 2 percent inflation target, to be achieved “at the earliest possible time” -- a pace not sustained in Japan since the early 1990s. While judging that the economy is “relatively weak,” and that consumer prices will be flat for the time being, the BOJ refrained from adding immediate stimulus.

“The timing is the factor that caused the market to be a little disturbed,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London, referring to the decision to buy assets from next January. “We haven’t seen the big bazooka being taken out in terms of the weakening of the yen, which is implicit in getting anywhere near that inflation target.”

Shirakawa’s five-year term as governor concludes in April, and the terms of his two deputies end in March, giving the government that took office last month a chance to reshape the nation’s central bank.

Bullish Investors

Investors are the most bullish on Japan’s markets in more than three years and confident that Abe will weaken the yen. Respondents who see Japan offering the best opportunities worldwide over the next year rose to 21 percent this month from September’s 5 percent in a global poll of investors, analysts and traders who are Bloomberg subscribers.

The euro erased an earlier drop against the dollar after the ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 31.5 this month, the highest since May 2010.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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