May 10 (Bloomberg) -- The yen fell beyond 101 per dollar for the first time since April 2009 after a government report showed Japanese investors boosted holdings of overseas bonds and investors speculated on improving prospects of the U.S. economy.
The Dollar Index extended its biggest two-day rally since July, triggering plunges in oil, gold and Treasuries. Japan’s currency weakened against all of its 16 major counterparts as investors ended the longest streak of foreign bond sales since January 2010, boosting speculation Bank of Japan stimulus measures are driving local investors to seek higher returns overseas. The Australian dollar dropped below parity with the buck for the first time since June after the Reserve Bank this week cut interest rates to a record.
“We’d already priced in what was happening at the BOJ, and we’d already priced in that we had a huge shift in terms of government and monetary policy,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “What’s new is the U.S. dollar side of it. We’re in the midst of a big U.S. dollar move.”
The yen slumped 1 percent to 101.62 per dollar as of 5 p.m. New York time after depreciating to 101.98, the weakest level since Oct. 21, 2008. Japan’s currency slid 0.6 percent to 132.00 per euro after reaching 132.26, the least since January 2010. The euro dropped 0.4 percent to $1.2989.
For the week, the yen tumbled 2.6 percent against the dollar, the most since the period ended April 5. Japan’s currency has fallen 1.7 percent versus the euro.
Futures traders increased their wagers that the yen will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on an increase -- so-called net shorts -- was 78,560 on May 7, compared with net shorts of 71,127 a week earlier.
UBS AG lowered its one-month yen forecast to 102 per dollar from 95 and its three-month projection to 105 from 95. The yen was “already looking vulnerable” before falling below 100 yesterday and “changing flow dynamics are likely to keep the upswing alive,” Gareth Berry, a Singapore-based currency strategist at UBS, wrote in a client note.
The Japanese currency is likely to stay weaker than 100 per dollar, with the 100 level serving as support for the dollar-yen cross, Alan Ruskin, Deutsche Bank AG’s New York-based global head of Group of 10 foreign-exchange strategy, said in a television interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen. Going long dollar-yen is a good trade, according to Ruskin, who sees it increasing to 105 in the next two months.
Trading in over-the-counter foreign-exchange options totaled $54.7 billion, compared with $34.4 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $23.4 billion, the largest share of trades at 43 percent. Australian dollar-U.S. dollar options were the second most actively traded at $5.3 billion, or 10 percent.
Dollar-yen options trading was 68 percent above the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis.
“We are seeing the ramifications of the yen move that had the effect of exacerbating the already short-dollar position on the street,” or bets against the dollar, said Richard Gilhooly, an interest rate strategist at Toronto-Dominion Bank’s TD Securities unit in New York. “As the dollar rises, the dollar shorts get shorter, and it is feeding on itself.”
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, advanced 0.4 percent to 83.097.
Gold and oil led losses in 20 of the 24 commodities tracked by the S&P GSCI Index, sending the gauge down as much as 2.2 percent, as the stronger dollar caused declines in prices of materials denominated in the U.S. currency.
Yields on benchmark 10-year Treasury notes climbed to as high as 1.93 percent, the most in six weeks.
Japanese investors boosted holdings of overseas bonds in each of the previous two weeks, following six weeks of sales, Ministry of Finance data showed today. Investors bought a net 309.9 billion yen ($3.05 billion) of foreign bonds in the five days through May 3, and 204.4 billion yen the previous week.
The yen has dropped 5.2 percent against the greenback since April 4 when Kuroda exceeded economist forecasts by pledging to double monthly bond purchases and buy longer-term debt to reach a 2 percent annual inflation goal. He said it’s natural for a currency to weaken in response to monetary stimulus.
The yen began its final slide toward 100 per dollar yesterday after the U.S. Labor Department reported claims for unemployment insurance unexpectedly dropped to a five-year low last week. That spurred bets the Federal Reserve will curtail stimulus earlier than previously anticipated.
“The big message is FX markets are anticipating that any tapering in global central bank policy will begin in the U.S. now that the other major banks have gotten more aggressive,” Gilhooly of TD Securities said. “The only currency willing to appreciate is the U.S.”
The yen has tumbled 23 percent in the past six months, the biggest decline among 10 major currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar gained 1.8 percent and the euro strengthened 4.3 percent.
The Australian dollar dropped below parity with its U.S. counterpart after the central bank lowered its inflation forecast following an interest-rate cut this week.
The so-called Aussie posted its biggest weekly decline since November 2011 versus the greenback as the Reserve Bank of Australia lowered its benchmark to a record 2.75 percent on May 7 and cited unusual strength in the currency.
The Australian dollar declined as much as 1.3 percent to 99.61 U.S. cents, the least since June, before closing at $1.0025.
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