Yen Tumbles on Report Abe Will Announce $254 Billion Stimulus Package

Jullier: Market Reaction to Abe's Fiscal Plan is Logical
  • Currency retraces Tuesday’s gains, weakens as much as 1.8%
  • Fed seen laying groundwork for 2016 rate hike at its meeting

The yen fell by the most in almost two weeks after Japanese Prime Minister Shinzo Abe surprised markets with a fiscal-stimulus package exceeding 28 trillion yen ($265 billion) as he seeks to jump-start the country’s floundering economy.

Japan’s currency weakened against all of its 31 major counterparts. Abe said the program will include 13 trillion yen in “fiscal measures,” according to excerpts of a speech broadcast on NHK public television. The yen’s slide spurred broad gains for the dollar as investors awaited the Federal Reserve’s latest assessment of the U.S. economy at its meeting ending Wednesday.

Abe’s stimulus may be directed at the Bank of Japan, which is mulling how much additional monetary easing it will announce Friday after policy makers meet. Specifics on Abe’s new stimulus were scant Wednesday even as stocks surged and the yen plunged. Of the 13 trillion yen worth of "fiscal measures" cited by local reports, it’s not clear how much will be fresh spending.

"The devil is in the details," said Chris Turner, London-based head of currency strategy at ING Groep NV. "The thinking seems to be that if they came out with a sizable package it would be good news for the Nikkei and bad news for the yen. It’s going to be quite hard for the Bank of Japan to deliver something spectacular Friday morning."

Fed Wagers

The yen weakened 1 percent to 105.69 per dollar as of 11:29 a.m. in New York. It depreciated as much as 1.8 percent, the biggest on an intra-day basis since July 12. It fell 1 percent to 116.18 to the euro.

"At this stage, you need monetary and fiscal policy to work together to have any chance of getting the Japanese economy on a better track,” said Kit Juckes, a global strategist at Societe Generale SA in London, in an interview on Bloomberg Television.

Japan’s currency was also hurt by speculation the Fed will acknowledge that the world’s largest economy is continuing to improve, bolstering the case for a 2016 interest-rate hike -- and boosting the dollar. Futures imply only a 10 percent chance the U.S. central bank will raise rates at its meeting ending Wednesday, but an almost 50 percent prospect of an increase this year.

Getting Bigger

What had begun as a 10 trillion-yen stimulus plan in local media reports in June had earlier this month been scaled up to 20 trillion. The Nikkei newspaper reported last week that the package could be as big as 30 trillion yen. Chief Cabinet Secretary Yoshihide Suga said at his regular briefing he was aware of Abe’s comment about the scale of the stimulus.

The yen pared some of its earlier drop after the Ministry of Finance denied a report in the Wall Street Journal that Japan was considering selling 50-year bonds.

“It’s a classic case of buy on rumor and sell on fact,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. “Part of the reason for the yen trimming its losses is the government denying issuing 50-year bonds, which would have been regarded as nearly tantamount to some sort of helicopter money.”

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