Yen Advances on Speculation BOJ Easing Is Priced In; Euro Drops

The yen advanced, extending a rally from a 2 1/2-year low against the dollar, on speculation its slide incorporates any stimulus the Bank of Japan may propose at its next meeting.

Japan’s currency strengthened for a second day against the euro after the Nikkei newspaper reported that Shigeru Ishiba, secretary general of Japan’s ruling Liberal Democratic Party, said a weaker yen may trouble some industries. The euro fell against the greenback, extending yesterday’s drop, after Luxembourg Prime Minister Jean-Claude Juncker said the currency is “dangerously high.” China’s yuan fell, retreating from a 19-year high, after the central bank cut its reference rate.

“The market has had second thoughts ahead of the BOJ meeting,” said Arne Rasmussen, head of currency research at Danske Bank A/S in Copenhagen. “The comments from politicians aren’t helping either. It is very tempting for people who’ve been shorting the yen to take some profit. We don’t think the BOJ will back down, we think they will deliver an aggressive monetary policy and the yen will continue to weaken.”

A short position is a bet that an asset’s price will fall.

The yen climbed at least 0.8 percent against all 16 of its major peers. It rose 1.1 percent to 87.85 per dollar at 9:12 a.m. in London, following a 0.8 percent jump yesterday. That would be the sharpest back-to-back gain since Aug. 9, 2011. The Japanese currency reached 89.67 on Jan. 14, a level unseen since June 2010.

The euro slid 0.3 percent to $1.3270 after dropping 0.6 percent yesterday. It touched $1.3404 on Jan. 14, the strongest since Feb. 29. The currency fell 1.3 percent to 116.65 yen.

Inflation Goal

BOJ Governor Masaaki Shirakawa and his fellow board members will review the central bank’s inflation goal at their meeting on Jan. 21-22 meeting. Prime Minister Shinzo Abe has called for the target to be doubled and said on Jan. 13 that he wants a BOJ chief “who can push through bold monetary policy.”

The yen halted losses yesterday after Japanese Economy Minister Akira Amari said an excessively weak currency may drive up import costs and hurt households.

“Expectations for more monetary easing by the BOJ have been running ahead of themselves, so people are cautious about a possible disappointment,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “A further decline in the yen is less likely unless there is a surprise.”

Nissan Motor Co. Chief Executive Officer Carlos Ghosn said yesterday the auto maker would move more production overseas to keep from being a “prisoner of exchange rates.”

Yen Dependence

“We want to decrease our dependence on the yen, no matter what is the evolution of the yen,” Ghosn told Bloomberg at the at the 2013 North American International Auto Show in Detroit.

Currency volatility rose to a four-month high, increasing the chance that price swings will wipe out profits. The JPMorgan G7 Volatility Index, derived from premiums on foreign-exchange options, rose to as much as 8.43 percent yesterday, the most since Sept. 6. It fell to 7.06 percent on Dec. 18, the lowest since August 2007.

The yen tumbled 5.3 percent over the past month, making it the biggest decliner among a basket of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 0.3 percent and the euro climbed 1.2 percent, the indexes show.

The euro’s advance against the dollar is posing a fresh threat to the European economy just as it shows signs of escaping the debt crisis, Juncker, who leads the group of euro-area finance ministers said yesterday.

“It was said last year that the euro zone was at risk of breaking and I said last year that this won’t happen,” Juncker, who steps down this month as head of the so-called eurogroup, told an annual gathering of business leaders in Luxembourg. “The euro zone has become more stable after lots of efforts, some from me,” Juncker said, adding that now “the euro foreign-exchange rate is dangerously high.”

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