Photographer: Chris Ratcliffe/Bloomberg

Dollar Doldrums a Boost to Asian Currencies

  • Currency’s surge adds pressure on Japan to boost stimulus
  • December Fed interest-rate boost prospects fall short of 50%

The yen strengthened beyond 100 per dollar for the first time since the U.K. voted to leave the European Union, as prospects the Federal Reserve will leave interest rates on hold this year heaped pressure on Japanese policy makers to ease again.

That’s only the second time Japan’s currency has broken through the threshold since 2013. The yen has outperformed all of its developed-market counterparts this year and surged 20 percent against the greenback. The Bank of Japan’s introduction of a negative interest rate in January failed to stymie the advance, while its failure to meet investor expectations for expanding stimulus last month spurred the gains on.

The yen climbed 1 percent to 100.21 per dollar as of 2:01 p.m. in New York, having touched 99.54. That’s the strongest since June 24, when the result of the U.K. referendum was announced, and puts Japan’s economic targets in jeopardy.

“A sustained break of that level would up the pressure on the BOJ to take steps at its September meet,” said Ray Attrill, co-head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney.

The yen’s strength reduces Japan’s import costs and renders its exports less competitive, making the central bank’s 2 percent inflation goal a more distant prospect. One closely watched measure of consumer prices fell 0.5 percent in June, the most since March 2013, a month before Japan started its stimulus program. The central bank announced last month it would conduct a comprehensive review of the effectiveness of its policies at its gathering in September.

The exchange rate may prove painful for Japan Inc. In the BOJ’s latest Tankan survey, the country’s big manufacturers assumed a rate of 111.41 per dollar for the current fiscal year. Toyota Motor Corp. is among companies to have warned about the impact of a stronger yen on earnings.

The currency’s surge may revive speculation the authorities will intervene to weaken the yen. Japanese Vice Finance Minister Masatsugu Asakawa commented on the currency twice on Aug. 3, saying he saw one-sided speculative movements in the market.

Yet there are growing doubts the BOJ can keep finding enough bonds to buy in its unprecedented stimulus plan, while the odds of its U.S. counterpart following a December rate increase with another before 2016 is out are at 45 percent, according to futures prices compiled by Bloomberg. That’s down from 49 percent before a report Friday showed stagnating U.S. retail sales.

Japan may have “come to the end of the line on the monetary policy front,” said  Neil Jones, London-based head of hedge-fund sales at Mizuho Bank Ltd., who sees the yen climbing to 90 to 95 per dollar. “You’ve got sovereign convergence in play.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE