Yen Falls Most in 17 Months as BOJ Considers More Negative Rates

BOJ to Consider Negative Rates for Loans
  • Japan's currency in back-to-back weekly drop versus dollar
  • Fed, BOJ meetings may underline divergence in monetary policy

The yen dropped the most in 17 months after Bloomberg reported the Bank of Japan may consider helping banks lend by offering a negative rate on some loans.

Japan’s currency slid against all 31 of its major counterparts as people familiar with the matter said talks may take place in conjunction with a decision to make a deeper cut to the current negative rate on reserves. The BOJ meets April 27-28.

“Japan’s economy seems even more ripe for monetary stimulus," said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. That, alongside “reports of a rising risk of BOJ action next week," are causing the yen to plunge, he said.

The currency, which tends to gain in times of market turmoil as investors seek its relative safety, has appreciated more than 7 percent against the dollar this year as equity and commodity markets faltered. Hedge funds and money managers increased net bullish bets on the yen to a record last week, according to data from the Commodity Futures Trading Commission. The yen’s gains have prompted analysts to weigh in on the prospect for Japanese officials to act to curb the currency’s strength. As of late February, Japan hadn’t intervened in currencies since 2011.

The yen weakened 2.1 percent to 111.79 per dollar as of 5 p.m. in New York. On a closing basis, that was the biggest decline since October 2014. It slid 2.7 percent this week, adding to a 0.6 percent decline the previous week. Japan’s currency depreciated 1.6 percent to 125.50 per euro.

BOJ Watch

"The market is seeing more scope for the BOJ to do something next week," said Daniel Katzive, head of foreign-exchange strategy for North America at BNP Paribas SA in New York. He cited recent news reports "suggesting there are discussions underway about pulling the trigger on further measures -- that’s why the yen is weakening."

Before the central bank meeting, investors are unlikely to bet on further strength in the currency, according to Stuart Bennett, head of Group-of-10 currency strategy in London at Banco Santander SA.

“There is caution,” Bennett said. “The risks are all skewed to a dovish backdrop."

Twenty-three of 41 analysts surveyed by Bloomberg predict the BOJ will expand stimulus next week. Nineteen forecast the central bank will increase purchases of exchange-traded funds, eight expect a boost in bond buying and eight project the BOJ will lower its negative rate, the survey conducted April 15-21 shows.

“We thought they would be doing more quantitative easing but it looks like they may be doing more on the negative interest-rate front,” said Joseph Capurso, a senior currency strategist in Sydney at Commonwealth Bank of Australia. That’s driving the move lower in the Japanese currency and “if delivered, you’ll get a temporary but significant spike up in dollar-yen.”

Commonwealth Bank recommended buying the dollar against the yen through two-week options to take advantage of the diverging monetary policies of the Federal Reserve and the BOJ. National Australia Bank Ltd. said in a report it favors purchasing dollars at current levels before the BOJ meeting, targeting an appreciation to 113 yen.

"That divergence trade appears to be coming back into vogue," Manimbo said.

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