Yen Declines Against Peers as Traders Bet on More BOJ Stimulus

The yen dropped against most of its major peers as traders bet Bank of Japan Governor Haruhiko Kuroda will add to stimulus measures as early as next week in a bid to end deflation.

Japan’s currency slid for a second day before Kuroda appear before parliament tomorrow after telling lawmakers yesterday he aims to achieve 2 percent annual inflation in two years. The euro traded 0.2 percent from a four-month low versus the dollar as concern of contagion from Cyprus’s banking crisis sapped confidence in the currency bloc. The won fell for the first time in three days as the risk of conflict on the Korean peninsula spurred sales of South Korean shares by global funds.

“Traders are very comfortable selling the yen, and that won’t change after the policy meeting,” said Kikuko Takeda, a senior currency economist at Bank of Tokyo-Mitsubishi UFJ Ltd in London, referring to the BOJ gathering on April 3-4. “Kuroda will be focused on how to control market expectations over the long term. That may be an even more pressing challenge for the BOJ than aggressive easing.”

The yen weakened 0.3 percent to 94.71 against the dollar as of 6:57 a.m. in London from yesterday, when it lost 0.3 percent. It fell 0.2 percent to 121.70 versus the euro. The shared currency slipped 0.1 percent to $1.2851 from yesterday, when it touched $1.2829, the lowest since Nov. 22.

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

Kuroda’s Plan

He said the BOJ may scrap the so-called banknote rule of keeping its bond holdings at less than the value of banknotes outstanding, and policy makers will discuss purchasing more debt with longer maturities. The BOJ currently buys government notes maturing in three years or less through its 76 trillion-yen ($802 billion) asset-purchase program.

Former BOJ Deputy Governor Kazumasa Iwata joined economists in predicting that Kuroda will fail to meet his price-increase goal.

“It’s impossible to achieve 2 percent inflation in two years,” Iwata said in an interview yesterday. Even five years won’t be easy, he said.

The yen has slid more than 8 percent against the dollar so far this quarter amid mounting expectations for easing by the BOJ, the second-worst performance among major peers after South Africa’s rand. The Mexican peso is the biggest gainer with a 4.1 percent advance.

After the BOJ meeting next week “I think dollar-yen will fall because expectations are so high for some big bang approach,” said Joseph Capurso, a Sydney-based foreign-exchange strategist at Commonwealth Bank of Australia, said of next week’s central bank gathering.

European Confidence

The euro remained lower for a second day after dropping 1.1 percent on March 25 ahead of data today set to confirm consumer confidence in the region stayed depressed in March. The initial reading from the European Commission in Brussels was minus 23.5, amid signs the economy is struggling to pull out of recession.

The final figures for French gross domestic product will probably confirm a 0.3 percent contraction in the fourth quarter, the biggest in almost four years, according to the median forecast of economists in a Bloomberg News survey.

The euro risks dropping toward parity with the U.S. dollar over the next 2 1/2 years as the region enacts policies aimed at weakening the currency to bolster growth, according to Hans-Guenter Redeker, the head of global currency strategy at Morgan Stanley.

It will continue to decline as the bailout package for Cyprus fans concern about the safety of bank deposits in the region, Redeker said in an interview yesterday in Sydney. Under the terms of an agreement struck March 25, senior Cypriot bank bond holders will take losses and uninsured depositors will be largely wiped out.

‘Very Negative’

The deal is “long-term a very negative thing,” Redeker said. Private-sector funding in indebted nations such as Spain and Italy will probably stay elevated compared to Germany, hampering the effectiveness of monetary policy across the region as austerity measures detract from growth, he said.

Italy auctions as much as 4 billion euros ($5.1 billion) of notes maturing in 2018, and up to 3 billion euros of 10-year bonds today. The euro area’s fourth-biggest economy sold 2.8 billion euros of 2014 zero-coupon bonds this week at a yield of 1.746 percent, the highest since Dec. 27.

The country is still without a government, a month after inconclusive elections. Democratic Party leader Pier Luigi Bersani holds talks with Beppe Grillo’s Five Star Movement today that will be streamed live over the Internet.

The won dropped 0.3 percent to 1,111.70 per dollar, according to data compiled by Bloomberg. North Korea put its artillery forces on their highest combat level yesterday and reiterated threats to attack the U.S. and South Korea.

“North Korea’s bellicose rhetoric and the threats that they engage in follow a pattern designed to raise tensions and intimidate others,” White House press secretary Jay Carney said yesterday in Washington.

Before it's here, it's on the Bloomberg Terminal.