Yen Touches One-Week Low as Morgan Stanley Sees More BOJ Easing

Haefele: Kuroda's Comments Designed to Keep Us Guessing
  • Japan’s currency reaches weakest level since Sept. 6
  • Bank of Japan is scheduled to meet next week on policy

The yen fluctuated after reaching a one-week low as Morgan Stanley says the Bank of Japan is likely to dive further into negative-interest-rate policy at a meeting next week.

Japan’s currency fell against about half of its major counterparts after some central-bank officials were reported to have said they still favor stepping up purchases of government bonds. Morgan Stanley economists said in a note Wednesday that the central bank may opt for steps including a "marginal increase" in purchases of Japanese government bonds. One goal of the measures would be to steepen the nation’s yield curve, the analysts wrote.

"A steeper curve would weaken” the yen, economists Takeshi Yamaguchi and Robert Alan Feldman wrote. The Bank of Japan “has apparently decided to strengthen its bet that NIRP will benefit the economy, despite weak evidence and much opposition."

Japan’s currency strengthened 0.1 percent to 102.43 per dollar as of 5 p.m. New York time. At one point it touched 103.36, the weakest since Sept. 6. The yen has gained about 17 percent versus the dollar this year amid bouts of haven demand.

Some BOJ officials still favor increasing government-bond purchases if the board decides it needs to expand stimulus, according to people familiar with the discussions. Their views suggest that cutting a key interest rate further below zero, or expanding purchases of risk assets such as real-estate investment trusts, aren’t the only options if the board concludes at the end of the BOJ’s comprehensive review that more action is needed.

Among those economists who expect BOJ action this month or later, 53 percent project a deeper cut to the negative rate placed on a portion of commercial lenders’ reserves at the central bank, according to a Bloomberg survey with 43 respondents. Thirty-five percent are looking for more purchases of Japanese government bonds, with some suggesting the BOJ may shift to a target range to give it more flexibility.

"The market is trading with a little bit more of a weaker bias for the yen," 
said George Davis, chief technical strategist at Royal Bank of Canada’s RBC Dominion Securities unit in Toronto. "People are leaning toward some sort of policy action from the BOJ."

Davis expects the dollar to weaken to 97 yen by year-end.

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