Yen Plunges Most in Three Years on Japan Stimulus; Dollar Drops

The yen slid the most against the dollar in more than three years after the Bank of Japan outstripped forecasts and announced unprecedented measures to fight deflation, spurring concern the currency will be debased.

The dollar dropped against the euro by the most in almost three months as U.S. jobs gains in March trailed forecasts, adding to speculation American economic growth is faltering and the Federal Reserve won’t slacken stimulus soon. Fed Chairman Ben S. Bernanke is scheduled to speak next week in Atlanta. The yen fell the most against the euro since 2010 as Japan’s central bank said it would double its bond buying.

“This was at the upper bound of market expectations,” Richard Cochinos, a currency strategist at Bank of America Corp. in New York, said yesterday in a phone interview of the BOJ’s announcement. “It’s in our view a very yen-negative event that should have longer-term flow implications. The fact that we had a very weak payroll and you didn’t see dollar-yen significantly lower is very meaningful.”

The yen tumbled 3.4 percent, the most since the five days ended Dec. 4, 2009, to 97.57 per dollar this week in New York, snapping a three-week winning streak. It touched 97.83, the weakest level since June 2009. The Japanese currency dropped 4.7 percent, the most since the week ended Sept. 17, 2010, to 126.79 per euro. Against Europe’s shared currency, the greenback lost 1.3 percent, the most since Jan. 11, to $1.2991 per euro, falling for the first week since March 15.

Euro Bets

Futures traders increased their bets that the euro will decline against the dollar, figures from the Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a drop -- so-called net shorts --was 65,701 on April 2, the most since November. Net shorts were 49,095 a week earlier.

The yen was the biggest loser among the dollar’s 31 most-traded peers. Hungary’s forint was the biggest winner, rallying 3.2 percent to 229.96 to the greenback.

The forint rose as the Hungarian central bank unveiled measures to boost lending and economic growth. While the Magyar Nemzeti Bank will use as much as 3 billion euros ($3.8 billion) of its foreign reserves, the level of reserves will stay within safe limits, bank President Gyorgy Matolcsy told reporters on April 4.

Asian currencies depreciated the most since January this week as policy makers from the Philippines to Japan proposed measures that tend to weaken their exchange rates. The Bloomberg-JPMorgan Asia Dollar Index declined 0.3 percent since March 29, the most since the week ending Jan. 25.

BOJ Decision

BOJ officials said April 4 the central bank will increase its monthly bond purchases to 7.5 trillion yen ($77 billion), exceeding the 5.2 trillion yen forecast by economists surveyed by Bloomberg. They also suspended a cap on some bond holdings and dropped a limit on debt maturities. They set a two-year horizon for their goal of 2 percent inflation.

The two-day policy meeting was the first led by Governor Haruhiko Kuroda since he took office last month. Officials are working to end 15 years of deflation.

“The Bank of Japan was very aggressive,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA, said in a telephone interview. “It reaffirmed market sentiment regarding weakness in the yen.”

U.S. Employment

Japan’s currency, traditionally considered a haven, fell yesterday for a second day against the greenback even as a Labor Department report showed U.S. payrolls grew by 88,000 workers in March, the least in nine months. The median forecast in a Bloomberg survey of economists was for a gain of 190,000.

The jobless rate declined to 7.6 percent, from 7.7 percent, the Labor Department figures showed in Washington. The latest figure, the lowest since December 2008, reflected a 496,000 decline in the size of the labor force.

The report followed data this week from the Institute for Supply Management showing its index of U.S. service industries, which accounts for almost 90 percent of the economy, expanded in March at the slowest pace in seven months.

“We’re very concerned that the data in the U.S. is beginning to soften,” Bank of America’s Cochinos said.

The Fed is buying $85 billion of bonds a month in the third round of its quantitative-easing strategy to spur the economy. While policy makers reiterated after their March meeting the Fed will maintain its purchases until there’s significant improvement in the labor market, Bernanke told reporters the pace may be altered if warranted by a healing economy.

Bernanke Speech

Bernanke is scheduled to speak at the Fed Bank of Atlanta 2013 Financial Markets Conference on April 8. The central bank’s next policy meeting is April 30-May 1.

The euro climbed on April 4 against the dollar by the most on a closing basis in almost two weeks, 0.7 percent, after the European Central Bank held interest rates steady at 0.75 percent and ECB President Mario Draghi said policy makers are “ready to act” if the region’s economy declines further.

Draghi said Cyprus, whose bank bailout sparked concerns Europe’s debt crisis would spread, isn’t a template for resolution and voiced determination to support the euro.

“Draghi reiterated that no country is going to leave the euro, and that gave the euro support,” Credit Agricole’s Harajli said yesterday. “Whether the euro is going to be able to sustain these gains remains an open question. The euro zone continues to slow.”

The euro fell versus most major peers on April 2 as data showed the region’s unemployment rate increased to a record 12 percent in early 2013.

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