Yen Set for Longest Monthly Drop in 12 Years on Easing

Yen Drops Amid Speculation Deflation Concern to Spur BOJ Easing
Japanese 100 yen coins are arranged for a photograph in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

The yen headed for its longest string of monthly losses in more than a decade on prospects lingering deflation will prompt Bank of Japan Governor Haruhiko Kuroda to boost stimulus measures at a policy meeting next week.

The Japanese currency slid versus the dollar this quarter as Kuroda pledged action to achieve the central bank’s 2 percent annual inflation target. A report today showed Japan’s consumer prices slid in February at the fastest pace in 2 1/2 years. The euro is poised for a three-month drop against the dollar as Italy’s search for a prime minister continues and Cyprus’s bailout revived debt crisis concerns.

“People have been rebuilding yen short positions,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “The yen has come a long way, and prospects for it to weaken further will very much depend on what Kuroda does at the policy meeting next week.” Short positions are bets an asset will decline.

The yen fetched 94.07 per dollar as of 4:29 p.m. in Tokyo from 94.15 yesterday. It slid 1.6 percent since Feb. 28, set to complete the longest monthly falling streak since 2001.

Japan’s currency climbed 0.1 percent to 120.52 per euro and has gained 0.3 percent this month. The euro bought $1.2813 after rising 0.3 percent to close at $1.2816 in New York. It’s poised for a 1.9 percent monthly drop. Today is a holiday in Europe, the U.S., and much of Asia.

Japan’s currency has fallen 7.8 percent against the greenback since Dec. 31, headed for its biggest back-to-back quarterly decline since 1995. The euro has lost 2.9 percent over the same period.

Kuroda Pledge

Kuroda will preside over his first BOJ policy meeting on April 3-4. He said in testimony to parliament this week that he wants to achieve the central bank’s price target in two years. The central bank’s policies may become aggressive and experimental under Kuroda, Pacific Investment Management Co., which runs the world’s biggest bond fund, said on its website.

Japan’s consumer prices fell 0.7 percent in February from a year earlier, compared with a 0.3 percent decline in the previous period, the statistics bureau reported in Tokyo today. That’s the biggest drop since August 2010 and in line with the median estimate of economists surveyed by Bloomberg News.

Core consumer prices, excluding fresh food, declined 0.3 percent, failing to rise for a 10th month.

“The fact that deflation is persisting just increases the pressure to make sure he comes out from that first meeting doing something big right from the start,” Nicholas Smith, a Japan strategist at CLSA Asia-Pacific Markets Ltd. in Tokyo, said in a Bloomberg Television interview. “We’re probably going to weaken from the present 94 yen to the dollar to about 100, I would have thought, perhaps within this year.”

Italy Election

Strategists surveyed by Bloomberg News predict the yen will be at 97 per dollar by Dec. 31.

In Italy, President Giorgio Napolitano took charge of the search for the next prime minister after Pier Luigi Bersani was unable to assemble a majority in the divided parliament. Napolitano will consult political leaders today.

The euro rallied yesterday after Cyprus averted panic withdrawals as banks opened for the first time in almost two weeks, with government controls on access to cash leading to orderly lines rather than runs on deposits.

“The re-emergence of concerns in Italy poses downside risks to the euro, as Bersani has been unable to form a government, thus far,” Morgan Stanley strategists led by Hans-Guenter Redeker wrote in an e-mailed note to clients yesterday. Markets will focus on economic data “to see if this volatility is spilling over to real output.”

Euro Manufacturing

A final reading of a gauge of euro-area manufacturing by London-based Markit Economics will probably confirm a 20th month of contraction in March, according to the median estimate of economists surveyed by Bloomberg News. Markit will publish the figures on April 2. Two days later, European Central Bank officials will gather for a monetary policy decision, when they are expected to hold the benchmark interest rate at a record-low 0.75 percent, a separate poll of analysts showed.

The Australian dollar added 0.1 percent to $1.0416, extending its quarterly gain to 0.2 percent. On April 2, Reserve Bank of Australia Governor Glenn Stevens will probably refrain from lowering his nation’s interest rate for a third meeting this year, according to all 28 economists surveyed by Bloomberg News.

The central bank has reduced the key rate by 1.75 percentage points to 3 percent since the beginning of November 2011.

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