Yen Rises to Three-Month High Versus Dollar on BOJ

The yen rose to a three-month high versus the dollar after the Bank of Japan refrained from expanding stimulus that tends to weaken a currency and said it expects a moderate economic recovery to continue.

The Japanese currency gained versus the greenback as the U.S. yield premium over Japan was near the lowest since October before the release of minutes from the Federal Reserve’s April meeting. The pound rose as retail sales jumped more in April than economists forecast and the Bank of England said the case for interest-rate increases is becoming more balanced. Australia’s dollar held its steepest loss in two months after consumer confidence dropped and iron ore prices fell.

“The impression given from the BOJ is that it is in no hurry to implement additional easing measures,” said Alvin Tan, a foreign-exchange strategist at Societe Generale SA in London. “This is pushing back on market expectations for further stimulus in July. As a result, the yen is strengthening.”

The yen gained 0.3 percent to 101.05 per dollar as of 7 a.m. New York time after reaching 100.82, the strongest level since Feb. 5. Japan’s currency appreciated 0.4 percent to 138.26 per euro after touching 138.22, the most since Feb. 7. The 18-nation common currency was little changed at $1.3686.

The BOJ said it will continue buying about 7 trillion yen of sovereign debt a month at the conclusion of a two-day meeting today. Policy makers will introduce additional stimulus by the end of their July gathering, according to 44 percent of economists surveyed by Bloomberg News before today’s BOJ meeting.

‘Moderate Recovery’

“Japan’s economy is expected to continue a moderate recovery as a trend,” the BOJ said in a statement accompanying the decision. Quantitative easing “has been exerting its intended effects,” it said.

It was the first time the central bank said its stimulus is working, according to Marcel Thieliant, a Singapore-based economist at Capital Economics.

“The optimistic tone of recent BOJ communication suggests that the chances of additional stimulus being announced as soon as July have shrunk substantially, but we still think that more easing will eventually be required,” Thieliant wrote in a note to clients. The additional stimulus will lead the yen to weaken toward the end of the year, he said.

The yen will depreciate to 108 per dollar at the end of 2014, according to the median estimate of analysts in a Bloomberg survey.

Fed Policy

New York Fed President William Dudley yesterday told the New York Association for Business Economics that the pace of eventual interest-rate rate increases “will probably be relatively slow,” depending on the economy’s progress and financial markets.

The Fed reiterated on April 30, after its last policy meeting, that it will keep the key rate target near zero for a “considerable time” once it concludes the bond-purchase program it has also used to fuel growth.

Treasury 10-year note yields were little changed at 2.53 percent. The yield premium over similar-maturity Japanese government bonds was at 1.92 percentage points. The spread shrank to 1.89 percentage points on May 15, the least since October 29, based on closing levels.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, was little changed at 1,008.58, from 1,008.92 yesterday.

Pound Climbs

The pound gained versus 15 of its 16 major peers as U.K. retail sales increased for a third month in April, stoking speculation the Bank of England will move closer to raising interest rates as the economy strengthens.

Sales including auto fuel surged 1.3 percent from March, when they rose an upwardly revised 0.5 percent, the Office for National Statistics said in London. That compared with a forecast for an increase of 0.4 percent, according to the median estimate in a Bloomberg News survey.

Minutes from this month’s Bank of England monetary policy meeting said the interest-rate decision was becoming “more balanced” for some of the nine members. However, all agreed that they needed to see “more evidence of slack reducing” before it would be time to increase the benchmark interest rate from a record-low 0.5 percent.

The pound rose for a fifth day versus the dollar, strengthening 0.3 percent to $1.6894 after climbing to $1.6996 on May 6, the highest since August 2009. Sterling appreciated as much as 0.5 percent to 81 pence per euro, its strongest level since January 2013.

Aussie Declines

The Aussie fell 0.1 percent to 92.33 U.S. cents after reaching 92.16 cents, the lowest since May 2. It weakened 0.9 percent yesterday, the biggest drop since March 19.

Ore with 62 percent iron content delivered to the Chinese port of Tianjin fell 1 percent to $97.50 a dry ton yesterday, the lowest since September 2012, according to data from The Steel Index Ltd. The raw material has dropped 27 percent this year, after falling 7.4 percent in 2013.

“The relationship may be reasserting itself between the Australian dollar and commodity prices,” said Hamish Pepper, a strategist at Barclays Plc in Singapore. “If we look at Australia’s commodity prices overall on a trade-weighted basis, they’ve been pretty weak this year.”

Australian consumer confidence fell to its lowest level since August 2011, prior to the central bank’s most recent easing cycle, after the government’s budget flagged spending cuts and a new tax on high-income earners.

The index of sentiment plunged 6.8 percent to 92.9 in May from a month earlier, Westpac Banking Corp. and Melbourne Institute said today.

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