Yen Weakens on Speculation Abe Will Cut Taxes; Kiwi Appreciates
The yen weakened for the first time in five days against the dollar as speculation Japan’s government will cut corporate taxes spurred stock gains and damped demand for the relative safety of the currency.
Japan’s currency dropped against all of its 16 major counterparts as shares rallied on bets the tax cut proposed by Prime Minister Shinzo Abe will make companies more profitable. New Zealand’s dollar strengthened amid speculation the country’s central bank will be the first among developed nations to raise interest rates. The pound weakened against the dollar after a government report showed annual economic growth was less than earlier estimated.
“We anticipate further yen weakness over the coming quarters as evidence mounts that Abe’s policy is bearing fruit,” Andrew Wilkinson, the chief economic strategist at Miller Tabak & Co. in New York, said in a telephone interview. “The yen’s going through a bit of a tussle. It’s been pushed and pulled between its haven status on the back of the Washington debate over the U.S. debt ceiling and potential for further stimulus from the domestic Japanese government.”
The yen dropped 0.6 percent to 98.89 per dollar as of 5 p.m. New York time, after reaching 100.61 on Sept. 11, the weakest since July 22. Japan’s currency lost 0.3 percent to 133.52 per euro. The dollar strengthened 0.3 percent to $1.3489 per euro.
The Brazilian real has gained 7.3 percent versus the greenback this month, while the yen has declined 0.8 percent.
This quarter, New Zealand’s dollar has led all major gainers with a 7.1 percent increase, while the worst-performing South African rand has slipped 1.1 percent. Denmark’s krone is the best-performing currency in 2013 and the rand has plunged 15.2 percent.
The New Zealand dollar rebounded from a one-week low against the greenback as Asian stocks advanced, underpinning demand for higher-yielding currencies. The currency rose 0.6 percent to 82.91 U.S. cents after dropping to 82.17 cents yesterday, the lowest level since Sept. 18.
“Everybody’s forgotten that the Reserve Bank of New Zealand is one of the most hawkish central banks out there,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “I’m not surprised that the kiwi has picked up a little bit. I think it’s got more to do.”
The kiwi may extend its decline to as low as 79.95 U.S. cents if it touches 81.80 U.S. cents, the 200-day moving average and the Fibonacci 50 percent retracement of the currency’s highest level in August, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co, wrote today in a client note.
“The short-term corrective action continues to develop after approaching the next line of key resistance levels,” he said.
Abe’s government will pledge to promptly begin a study on reducing the corporation tax, Kyodo News reported, without citing anyone. The Prime Minister will announce an economic stimulus package on Oct. 1 at the same time as his decision on whether to raise the country’s sales tax, ruling Liberal Democratic Party tax panel chief Takeshi Noda said today.
“The fact that you’re seeing these corporate taxes being successfully cut has had a weakening effect on the yen,” Sireen Harajli, a strategist at Mizuho Bank in New York, said in a telephone interview. “The tax cuts are definitely seen as the government getting its way in terms of making the corporate sector more attractive.”
The pound dropped versus most of its major counterparts after a separate government report showed Britain’s current-account deficit increased in the first quarter to the widest since at least 1955.
“Growth numbers came in a bit softer year-on-year and what really sticks out is the current-account data,” said Ned Rumpeltin, head of Group-of-10 currency strategy at Standard Chartered Bank in London. “The market went into these numbers long and a little bit complacent so we’re seeing reaction in positioning.” A long position is a bet an asset will rise.
The pound dropped 0.3 percent to $1.6041 after climbing to $1.6096, the highest level since Sept. 19.
In the U.S., House Republican leaders offered a proposal today to increase the U.S. debt ceiling that drew protests from some members as the disputes about federal spending risk a government shutdown in four days. The leaders are preparing for what House Speaker John Boehner last month called a “whale of a fight” on the debt limit.
Trading in over-the-counter foreign-exchange options totaled $27 billion, from $20.3 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-Chinese yuan exchange rate amounted to $6.1 billion, the largest share of trades at 22 percent. Options on the dollar-yen rate totaled $4.6 billion.
Dollar-yuan options trading was 353 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 4 percent less than average.
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