Yen Drops Versus Peers as BOJ’s Kuroda Outlines Easing

The yen fell against all its major peers as Bank of Japan Governor Haruhiko Kuroda outlined monetary easing options to achieve a 2 percent annual inflation goal in two years.

Japan’s currency snapped a three-day advance against the dollar after Kuroda said the BOJ will consider extending the maturities of bond purchases and scrapping a limit on such buying. The euro traded 0.3 percent from a four-month low ahead of debt auctions in Italy, where lawmakers are trying to form a government after inconclusive elections last month. Singapore’s dollar climbed for a fourth day, the longest streak this year.

“The speculative community has driven dollar-yen higher,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. For Kuroda, “the bar is set quite high in terms of what he’s going to have to deliver to give dollar-yen a significant boost.”

The yen was little changed at 94.21 per dollar as of 6:46 a.m. in London, halting a three-day, 2 percent advance. It lost 0.2 percent to 121.28 per euro. Europe’s 17-nation currency rose 0.2 percent to $1.2873 from yesterday when it touched $1.2830, the lowest since Nov. 22.

Kuroda told lawmakers today that the BOJ will discuss purchasing more bonds with longer maturities. The BOJ currently buys government debt maturing in three years or less through its 76 trillion-yen ($807 billion) asset-purchase program.

He also said the BOJ may scrap its so-called banknote rule of keeping central bank bond holdings at less than the value of banknotes outstanding. Policy specifics will be discussed at the central bank board meeting, Kuroda said, with the next one scheduled for April 3-4.

“Achieving the 2 percent inflation target in two years is something that I have in my mind,” Kuroda said in the lower house of parliament.

Kuroda Testimony

“It’s a strong pledge from a well-intended man, but I’m not convinced it’s going to work,” Stephen Roach, a senior fellow at Yale University and former non-executive chairman for Morgan Stanley in Asia, said in a Bloomberg Television interview. “It’s going to take a lot more to bring Japan out of its long slump than just another effort at quantitative easing.”

The yen has fallen 17 percent in the past six months, the biggest decline among 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The U.S. dollar and euro have both gained 2.4 percent.

Italy is scheduled to sell bills today and bonds due in 2018 and 2023 tomorrow. The euro zone’s fourth-biggest economy auctioned 2.8 billion euros ($3.6 billion) of 2014 zero-coupon bonds yesterday at a yield of 1.746 percent, the highest since Dec. 27.

Political Risk

Italy’s Democratic Party leader Pier Luigi Bersani has two days left to overcome a shortfall of support in parliament, after President Giorgio Napolitano gave him a mandate on March 22 to try to form government.

“With the political risk in Italy continuing, it will be hard for the euro to make any headway,” said Yuki Sakasai, a foreign-exchange strategist at Barclays Plc in New York.

The euro slumped 1.1 percent against the greenback yesterday, the biggest decline in more than eight months amid investor concern that a levy on bank deposits in Cyprus could be replicated elsewhere.

European Union officials said that the Cyprus aid deal will impose losses of as much as 40 percent on uninsured depositors at Bank of Cyprus Plc and sees Cyprus Popular Bank Pcl being wound down, wiping out bondholders.

Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of 17 euro finance ministers, said imposing losses on depositors and bondholders must be part of the bailout toolkit.

‘Bad Precedent’

“It sets a very bad precedent for some of the other countries that may need a bailout down the track,” said Derek Mumford, a director at Rochford Capital, a currency risk-management company in Sydney. “The situation’s been handled very badly, and I do think it’s bad for the euro zone and the euro as a whole.”

In the U.S., orders of durable goods probably rebounded 3.9 percent in February from a 4.9 percent drop the month before, according to the median estimate of economists surveyed by Bloomberg News before the data is released today.

“The Federal Reserve remains on track to start scaling back its quantitative easing this year,” Mansoor Mohi-uddin, the Singapore-based chief currency strategist at UBS AG, wrote in a research note. “Financial markets are likely to price in such a move several months before it occurs.”

Rallies in the euro above $1.30 are unsustainable and the exchange rate is likely to trend towards $1.20 by year end, according to the note.

Dollar RSI

The dollar’s advance versus the yen may stall, Citigroup Inc. said, citing declines in the relative strength index.

The greenback’s 14-day RSI against its Japanese counterpart is near the neckline of 50 in a so-called head-and-shoulders chart, and a drop below that level may indicate a pause in the trend, Citigroup foreign-exchange strategist Osamu Takashima wrote today in a note to clients.

The dollar touched 96.71 yen on March 12, the strongest level since 2009.

Singapore’s currency climbed as much as 0.3 percent to S$1.2405 per U.S. dollar, the strongest since March 4. The city state yesterday reported a higher-than-estimated inflation rate for February.

(Corrects euro low in fourth paragraph.)
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