Yen Tumbles Most in 17 Months as BOJ Doubles Stimulus
The yen tumbled the most in 17 months against the dollar after the Bank of Japan (8301) outstripped forecasts and announced unprecedented economic stimulus measures that tend to devalue the currency.
The euro rose versus the dollar after the European Central Bank held interest rates steady and ECB President Mario Draghi said policy makers are “ready to act” if the region’s economy declines further. The pound gained as the Bank of England refrained from boosting asset purchases. The yen slid at least 2.9 percent versus all of its 16 most-traded peers as BOJ Governor Haruhiko Kuroda doubled monthly bond buying.
“Expectations were high, and Kuroda managed to meet and beat them in every sort of dimension,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. (WBC) in New York, said in a telephone interview. “It’s a pretty radical step. It’s flooding the system with liquidity and excess reserves, which is a negative for the currency.”
The yen tumbled 3.4 percent to 96.33 per dollar at 5 p.m. in New York and touched 96.41 in the biggest one-day drop since Oct. 31, 2011, when Japan intervened in foreign-exchange markets to weaken its currency. The yen slumped 4.3 percent to 124.62 per euro and touched 124.64, the weakest level since March 15. The shared currency gained 0.7 percent to $1.2936 after sliding 0.8 percent earlier to $1.2746, the lowest since Nov. 21.
The Japanese currency fell to the weakest level against Australia’s dollar since August 2008, sinking as much as 3.3 percent to 100.59 yen. The Aussie fell 0.2 percent against the greenback to $1.0437.
The Russian ruble breached the level at which the central bank may intervene to curb losses amid a drop in oil, the country’s main export earner. The currency reached 35.7542 against Bank Rossii’s dollar-euro basket. Market participants say the bank may move to curb excessive currency declines at a level beyond 35.65 rubles. The currency declined 0.1 percent to 31.6348 to the dollar in its fourth day of losses.
Hungary’s forint rallied versus all of its 31 most-traded peers after the country’s central bank unveiled measures to boost lending and economic growth. While the Magyar Nemzeti Bank will use as much as 3 billion euros ($3.8 billion) of its foreign reserves, the level of reserves will stay within safe limits, bank President Gyorgy Matolcsy told reporters.
The forint climbed 1.2 percent to 232.91 per dollar and touched 232.02, the strongest level since March 12.
Japan’s central bank said it will buy 7 trillion yen ($73 billion) of bonds a month to fight deflation, exceeding the 5.2 trillion yen estimated by economists surveyed by Bloomberg News. BOJ officials at the two-day meeting, the first to be led by Kuroda since he took office last month, also temporarily suspended a cap on some bond holdings and dropped a limit on debt maturities. They set a two-year horizon for their goal of 2 percent inflation.
Bets on monetary easing under the BOJ’s new leadership drove the yen down 18 percent in the past six months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar rose 2.3 percent and the euro gained 1.3 percent.
“They essentially pulled out all the different options in one go,” Jens Nordvig, global head of currency strategy in New York at Nomura Securities International, said in an interview on Bloomberg Television’s “Lunch Money” with Julie Hyman. “And I think personally it’s the right thing to do. You want to really say we’re serious about this inflation target, we’re going to do all it takes, and that’s what they did.”
The euro initially dropped to a four-month low against the dollar after the ECB left its benchmark interest rate at a record-low 0.75 percent. Draghi said risks to the economic outlook remain on the downside and inflation is “edging down well below” the ECB’s 2 percent target.
Draghi stressed the ECB’s “determination to fight” any speculation of a euro break-up after Cyprus last month became the fifth euro-area nation to secure a bailout.
The currency erased losses and later strengthened amid bets it had fallen too much, too fast.
“The initial reaction was to the weaker economic assessment and the easing bias,” BNP’s Serebriakov said. “He reemphasized and stressed the effectiveness and importance of the ECB’s backstop.”
The euro fell earlier after Markit Economics said its index of services output in the region declined to 46.4 in March from 47.9 in February. That’s below an initial estimate of 46.5 published March 21. A reading below 50 shows contraction.
The dollar headed for its first weekly loss versus the euro since March 15 before a government report tomorrow that a Bloomberg survey forecast will show U.S. employers added 190,000 jobs last month, following a gain of 236,000 in February.
Sterling rose against the dollar for a second day as the Bank of England kept its asset-purchase target at 375 billion pounds ($567 billion) in a decision that was forecast by 34 of 37 economists in another Bloomberg survey.
The pound was also boosted after an industry report showed Britain’s services output unexpectedly accelerated in March.
Sterling climbed 0.7 percent to $1.5235.
To contact the reporter on this story: Joseph Ciolli in New York at firstname.lastname@example.org