Yen Drops to Near 3-Year Low on BOJ Bets; Pound Slides

The yen dropped to the weakest since May 2010 against the dollar on speculation Prime Minister Shinzo Abe will select as next central-bank governor Haruhiko Kuroda, seen as a supporter of aggressive monetary easing.

The euro pared gains as a poll showed Silvio Berlusconi’s coalition leading in Italy’s parliamentary elections over parties supporting Pier Luigi Bersani, the ex-communist who campaigned to maintain budget rigor. Japan’s currency fell by the most in two weeks against the euro as Finance Minister Taro Aso told reporters that Kuroda would the “right choice.” The pound dropped for a second day against the euro after Moody’s Investors Service cut the U.K.’s credit rating.

“Kuroda is seen as being helpful towards the Japanese government’s thoughts regarding yen weakness,” Douglas Borthwick, a managing director and head of foreign exchange at Chapdelaine FX in New York, said in a telephone interview. “Now that they understand they can move the yen lower as long as they don’t talk about a specific level, I think we’re looking at it going to 100 in the next month or so.”

The yen depreciated 0.4 percent to 93.79 per dollar as of 10:56 a.m. in New York after sliding to 94.77, the weakest level since May 5, 2010. It last touched 100 in April 2009. Japan’s currency declined 0.6 percent to 123.93 per euro after losing as much as 1.7 percent, the most since Feb. 11. The euro rose 0.2 percent to $1.3216.

The yen has tumbled 7 percent this year, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The pound has the second biggest loss, sliding 6.2 percent. The euro gained 2.5 percent and the dollar has added 1.7 percent.

Krones Gain

The Norwegian and Danish krones rose with the euro, appreciating versus the majority of their most-traded peers. Norway’s currency added 0.1 percent to 5.6615 per dollar after earlier gaining 1 percent, its biggest increase since Jan. 10. The Danish currency appreciated 0.2 percent to 5.6459 per dollar.

Chile’s peso ended a seven-day stretch of losses versus the greenback, its longest since June 2010, as copper rose and the dollar weakened against emerging-market counterparts. The currency gained 0.1 percent to 472.45 per dollar after rising as much as 0.3 percent.

The Australian dollar fell the most in eight days against the dollar after a preliminary survey showed China’s manufacturing is expanding at a slower pace, dimming the outlook for the South Pacific nation’s exports. The so-called Aussie declined 0.6 percent before trading down 0.3 percent at $1.0294.

Italy Election

The euro pared gains as former Prime Minister Berlusconi and his allies attracted 31 percent of the vote to Bersani’s 29.5 percent, according to a survey conducted by Istituto Piepoli for the Italian public television.

Italian bonds gained earlier as another poll showed the populist campaigns of Berlusconi and Beppe Grillo falling short against the austerity advocates. Staying the course in the world’s third-biggest debtor is crucial to Europe’s effort to contain the turmoil that forced Berlusconi out of office in 2011.

“Heightened political uncertainty following Italian elections remains a downside risk in the near term,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UJF Ltd. in London.

BOJ Shuffle

With BOJ Governor Masaaki Shirakawa and two deputies will step down March 19, the prime minister is set to reshape the leadership of a central bank that has adopted his 2 percent inflation target and plans to begin open-ended asset purchases next year.

“The market seems to have formed an opinion that Kuroda is a dove and if he indeed becomes the new BOJ governor, he would be willing to do much more to support growth,” said Geoffrey Yu, a senior currency strategist at UBS AG in London. “The yen is weakening on speculation there will be more policy easing.”

The central bank had “substantial room” for further loosening and additional measures may be justified this year, Kuroda, currently president of the Asian Development Bank, said in a Feb. 11 interview.

Futures traders increased bets the yen will weaken against the dollar, figures from the Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a decline compared with those on a gain -- so-called net shorts -- was 65,891 on Feb. 19, compared with 61,306 a week earlier.

U.K. ‘Deleveraging’

The pound slid to the weakest since July 2010 versus the dollar after Moody’s cut the U.K.’s rating by one level to Aa1 on Feb. 22, citing weakness in the nation’s growth outlook and challenges to the government’s fiscal consolidation program.

“We’ve been expecting the U.K. to get downgraded this year,” Michael Amey, a money manager at Pacific Investment Management Co. in London, wrote in an e-mailed response to questions. While the impact on gilts will be limited, the pound’s decline “is a symptom of the challenge of deleveraging the U.K. economy,” he wrote.

The pound fell 0.5 percent to 87.42 pence per euro after depreciating to 88.15, the weakest since October 2011. Sterling dropped 0.3 percent to $1.5115 after slipping to $1.5073, the lowest since July 13, 2010.

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