Yen Falls for Third Week as BOJ Stimulus Is Unopposed by G-20

The yen weakened against its U.S. counterpart for a third week, the longest stretch since February, as the Bank of Japan’s stimulus policies were unopposed at a Group of 20 meeting in Washington.

Australia’s dollar fell against the majority of its most-traded peers as the Standard & Poor’s GSCI index of 24 raw materials touched a nine-month low on signs of slowing global economic growth. Europe’s 17-nation currency pared a loss versus the greenback as European Central Bank Governing Council member Jens Weidmann said the bank would only cut interest rates if economic data worsen. A report next week may show euro-zone manufacturing fell, a Bloomberg survey shows.

“The volatility has been higher in dollar-yen and the yen crosses than in most of the other majors,” Robert Lynch, a New York-based currency strategist at HSBC Holdings Plc, said yesterday in a telephone interview. After Japan’s finance minister said the nation avoided G-20 censure, “the market obviously took that as a signal that at least at this stage, the risk for official resistance to BOJ-aided yen weakening is less likely.”

Japan’s currency fell 1.2 percent to 99.52 per dollar in trading this week in New York, after touching 99.69, the weakest level since April 12. The yen hasn’t weakened beyond the 100 versus the dollar threshold since April 2009. The yen dropped 0.7 percent to 129.88 per euro. The dollar rose 0.5 percent to $1.3052 per euro.

Australia’s currency, known as the Aussie, fell 1 percent in the week while New Zealand’s dollar weakened 0.8 percent, among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar rallied 1.5 percent and Europe’s 17-nation currency gained 0.9 percent.

Global Growth

“You saw some slippage in risk currencies,” Lynch said of the drop in commodity prices and the impact on currencies.

China’s gross domestic product expanded 7.7 percent last quarter from a year earlier, the National Bureau of Statistics said April 14. That compares with the 8 percent median forecast in a Bloomberg News survey and 7.9 percent growth in the previous three months.

The International Monetary Fund trimmed its global growth forecast and urged European policy makers to use “aggressive” monetary policy as a second year of contraction leaves the euro area’s recovery lagging behind the rest of the world.

“We didn’t change interest rates at our last meeting as they are currently appropriate and in accordance with our assessment of economic developments, price stability and our monetary analysis,” Weidmann, who heads Germany’s Bundesbank, said yesterday at a press conference in Washington. “Of course, we will reassess the adequacy of the rates if the data change.”

ECB Watch

Euro-area manufacturing output may have contracted to 46.7 in April from 46.8 last month, according to a Bloomberg survey of economists. London-based Markit Economics is scheduled to report the purchasing manager index data on April 23.

“The PMIs on Tuesday next week are going to be crucial in terms of the ECB expectations,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said yesterday in a telephone interview.

The ECB left its benchmark rate unchanged at a record low of 0.75 percent on April 4. At the same time, with doubts growing about the central bank’s forecast for an economic recovery later this year, President Mario Draghi signaled policy makers are looking at a range of measures, including lower rates.

Market Focus

Japanese investors sold 331.9 billion yen ($3.4 billion) in overseas bonds and notes in the week ended April 12, according to the Ministry of Finance in Tokyo.

“Markets will continue focusing on Japan, and particularly the main theme in foreign-exchange markets has been expectations of significant investor outflows from Japan,” BNP’s Serebriakov said. “Most market participants do see it as a medium-term story and would expect those flows to materialize over time.”

Global finance chiefs handed Japan leeway to reflate its stagnant economy by indicating its fresh round of monetary stimulus doesn’t contravene a pact to avoid a currency war.

Meeting for the first time since the BOJ unleashed new measures aimed at delivering 2 percent inflation within two years, G-20 finance ministers and central bankers said yesterday in Washington that those actions are “intended to stop deflation and support domestic demand.”

Options traders are the most bullish on the dollar against its Japanese counterpart in almost two months.

The premium for three-month options granting the right to buy the greenback versus the Japanese currency relative to those allowing for sales was as much 0.94 percentage point today, the most since Feb. 18, according to 25-delta risk reversals.

“G-20 and the BOJ have made it very clear to the financial community that Japan has the green light regarding continued QE and resulting Japanese yen weakness,” Douglas Borthwick, a managing director and head of foreign exchange at Chapdelaine FX in New York, said yesterday in an e-mail. The 100 level in dollar yen “will fall soon.”

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