The yen slumped to the weakest level in almost seven years versus the dollar after the Bank of Japan unexpectedly increased monetary stimulus that tends to devalue the currency.
Japan’s currency slid as much as 3 percent, the most since the central bank first expanded stimulus in April 2013. At the end of a week in which the Federal Reserve took the opposite route and concluded its asset purchases, a gauge of the dollar against major counterparts rose to four-year high. The euro fell to a two-year low. An interest-rate increase in Russia couldn’t stop another plunge by the ruble. The real tumbled.
“Here’s the BOJ showing if you’re aggressive you can get ahead of expectations,” Jens Nordvig, a managing director of currency research at Nomura Holdings Inc., said by phone from New York. “We don’t think the move is over. We’re hoping to move to 115, I think that’s very possible.”
The yen slid 2.9 percent to 112.32 per dollar at 5 p.m. New York time after depreciating to 112.48, the weakest since December 2007. Japan’s currency slipped 2.1 percent to 140.68 per euro after falling 2.2 percent, the most since April 16, 2013. The shared currency dropped 0.7 percent to $1.2525 and touched $1.2486, the least since August 2012.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, advanced 1 percent to 1,080.84 after rising to 1,082.92, the highest on a closing basis since June 2010. It advanced 0.9 percent in October,its fourth consecutive monthly gain, the longest stretch since the period through March 29, 2013.
The real declined from a two-week high as Brazil’s budget deficit widened to a surprise record in September, adding to speculation that the Latin American nation’s credit rating will be reduced.
The currency fell 3.1 percent to 2.4778 per U.S. dollar.
The ruble slid as the Bank of Russia raised its key rate to 9.5 percent from 8 percent, according to a website statement. The currency weakened 3.1 percent against the central bank’s target basket of dollars and euros to 47.9462, bringing this month’s drop to 8.3 percent, the most since May 2012.
The drop extended the ruble’s loss to 7.9 percent versus the dollar this month, the most among 24 emerging-market currencies tracked by Bloomberg, and compared with a 1.9 percent decline by the Czech koruna that was the next biggest slide.
Chile’s peso led gainers, adding 3.5 percent, followed by the Turkish lira at 2.5 percent and South Africa’s rand at 2.2 percent.
The BOJ decided to expand the monetary base by 80 trillion yen a year from a previous 60 trillion to 70 trillion yen. Only three of 32 economists surveyed by Bloomberg predicted an increase in asset purchases.
The central bank, led by Governor Haruhiko Kuroda, said it will purchase exchange-traded funds so their amounts outstanding increase by about 3 trillion yen a year. Japanese real-estate investment trusts will be purchased with a view to raising their amounts outstanding by about 90 billion yen annually, according to the central bank.
“The interesting thing is the Fed became more hawkish than expected this week and the sense was maybe the BOJ will remain relatively neutral,” Neil Jones, the head of hedge-fund sales at Mizuho Bank Ltd. in London, said by phone. “This has accentuated the sovereign divergence as a major force in markets. The price action tells you it’s a major surprise. This is a significant event.”
Jones reduced his fourth-quarter forecast for the yen to weaken to 115 per dollar, from 110. Mizuho cuts its forecast to 113 from 112, he said.
Julian Robertson, the billionaire founder of Tiger Management LLC, called Japan’s added bond-buying “dangerous.”
“We have a bubble developing because we have forced bonds to almost no yield and it’s really the thing that’s the most dangerous going on economically in the world,” Robertson said in an interview on Bloomberg Television.
The yen had already weakened before the BOJ decision as the Nikkei newspaper reported that Japan’s $1.2 trillion Government Pension Investment Fund would announce a boost in its holdings of foreign assets.
In a press conference later, the GPIF said it would increase its target holdings for both local and overseas shares to 25 percent each from 12 percent, confirming the Nikkei report. The world’s biggest pool of retirement savings will seek to hold 15 percent of its portfolio in foreign bonds, up from 11 percent, and reduce domestic debt to 35 percent from 60 percent.
The dollar has gained since Fed officials, led by Chair Janet Yellen, on Oct. 29 confirmed that they will end an asset-purchase program that has added $1.66 trillion to its balance sheet, citing “solid job gains and a lower unemployment rate” even as they maintained a pledge to keep interest rates low for a “considerable time.”
The yen slumped 2.9 percent on the week, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, while the dollar gained 1.2 percent and the euro fell 0.1 percent.