Yen Weakens After G-20 Refrains From Censuring Japan

The yen weakened, extending losses that have made it the worst-performing major currency in the past three months, after Group-of-20 nations refrained from criticizing Japanese policies driving the decline.

Japan’s currency approached the weakest since May 2010 versus the dollar as Morgan Stanley said the final G-20 communique released in Moscow fell short of last week’s Group-of-Seven statement and means recent trends in currencies may resume. The pound dropped to a seven-month low after Bank of England policy maker Martin Weale said its decline may bolster exports. The euro fell as European Central Bank President Mario Draghi said the economy worsened at the start of this year.

“There’s renewed selling pressure on the yen and it’s a reaction to the G-20 statement,” said Adam Myers, head of foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London. “Everyone has woken up to the realization that the G-20 couldn’t criticize Japan when many other countries are manipulating their own currency.”

The yen fell 0.5 percent to 93.95 per dollar at 4:29 p.m. London time after depreciating to 94.46 on Feb. 11, the weakest level since May 5, 2010. Japan’s currency dropped 0.4 percent to 125.41 per euro after sliding 0.7 percent on Feb. 15. The euro declined 0.1 percent to $1.3350.

The yen has tumbled 13 percent versus the dollar in the past three months as Prime Minister Shinzo Abe announced spending increases and pressured the Bank of Japan to boost monetary easing. The decline is the most of 16 major currencies tracked by Bloomberg versus the greenback.

Moscow Talks

G-20 finance ministers and central bankers ended two days of talks in Moscow on Feb. 16 with a statement pledging not to “target our exchange rates for competitive purposes,” without singling out Japan.

Japanese officials said they haven’t deliberately sought to weaken their currency and its decline was a byproduct of efforts to revive the economy. U.S. Treasury Undersecretary Lael Brainard criticized “loose talk about currencies.”

“They basically said that the Japanese can continue to pursue their policies to reflate their economy, which the G-20 and the G-7 have called for, for a couple of years now,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “We’ll see the Japanese continue to pursue aggressive fiscal easing and monetary easing, and just not talk about the currency so much.”

Odds Increase

There’s a 54 percent chance the yen will depreciate to 100 per dollar by year-end, according to options data compiled by Bloomberg. The odds have increased from 25 percent on Jan. 24. The median prediction of about 80 strategists surveyed by Bloomberg is for it to end 2013 at 95 per dollar.

The main focus for the yen now is on who will be appointed to replace BOJ Governor Masaaki Shirakawa, who will step down on March 19, Morgan Stanley analysts led by Hans Redeker in London, wrote in the note to clients published Feb. 16.

Abe is likely to nominate Asian Development Bank President Haruhiko Kuroda, who is set to pursue the government’s anti-deflation course, though if he nominates former BOJ deputy governor Toshiro Muto, that may trigger the yen to retrace losses back to 90 per dollar, Morgan Stanley said.

Abe said in parliament today that the purpose of monetary easing is to end deflation and he wants to show the government’s intentions through nominees for BOJ governor and deputies soon.

Pound Falls

The pound fell for the first time in three days versus the euro on speculation Bank of England minutes to be released this week will echo those from January, which said sterling’s real exchange rate was above the level needed to help the economy rebalance. Futures traders reversed bets the pound would rise, data from the Commodity Futures Trading Commission showed.

“Investors are struggling to have faith in sterling,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “Investors are seeing an economy which is possibly entering another recession and is likely to see inflation holding above target. The central bank is also wanting to see the currency lower. Weale’s comments were a fresh piece of evidence.”

The pound fell 0.3 percent to $1.5472 after sliding to $1.5438, the weakest since July 13. Sterling depreciated 0.2 percent to 86.29 pence per euro.

Sterling has tumbled 4.5 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.9 percent and the euro rose 2.2 percent.

The euro approached a three-week low against the dollar after Draghi told the European Parliament in Brussels that “available indicators signal further weakness at the beginning of 2013, with domestic demand remaining dampened.”

The 17-nation currency dropped to $1.3306 on Feb. 15, the weakest level since Jan. 24.

U.S. financial markets are shut today for the Presidents’ Day holiday.

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