Yen Advances Most Since June on BOJ Speculation; Sterling Climbs

The yen gained the most since June versus the dollar as the Bank of Japan failed to offer additional stimulus efforts, fueling bets it will fall short in its effort to stoke economic growth by weakening the currency.

The euro fell for a second week versus the greenback on speculation the European Central Bank will cut its record-low key interest rate next week as the region’s economy slumps. The yen rose as BOJ Governor Haruhiko Kuroda said more easing steps aren’t needed at present and investors sought safety as the U.S. economy expanded less than forecast. Sterling climbed after the British economy avoided falling back into recession.

“The BOJ didn’t raise their inflation forecast or do anything new at this point, which caused dollar-yen to come lower in favor of the yen,” Brian Kim, a foreign-exchange strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a phone interview. “They have to implement what they announced earlier this month.”

The Japanese currency appreciated 1.5 percent to 98.05 per dollar this week in New York, the biggest jump since the five days ended June 1. It lost for the previous three weeks, sliding to 99.95 on April 11, almost reaching 100 for the first time in four years. Against the euro, the yen gained 1.7 percent, the most since February, to 127.73. The 17-nation currency slipped 0.2 percent to $1.3030.

Winners, Losers

The pound was the biggest winner among the dollar’s 16 most-traded counterparts this week, rallying 1.6 percent, while the Swiss franc dropped the most, 1 percent. The South African rand was the second-best performer, with a gain of 1.5 percent.

The dollar has appreciated 2.9 percent this year, the second-most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar was the biggest winner, adding 5.6 percent The euro strengthened 1.5 percent, while the yen fell 10 percent in the largest loss.

Futures traders decreased their bets that the yen will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on an increase -- so-called net shorts -- was 79,730 on April 23, compared with net shorts of 93,411 a week earlier.

Net-short bets that the euro will fall against the dollar increased to 34,275 as of April 23, from 29,764 a week earlier, CFTC figures showed.

European Economy

The euro declined against most major counterparts as a report that showed weakening services and manufacturing in the region added to speculation the ECB will lower interest rates to spur growth. The central bank meets on May 2. Its main refinancing rate is 0.75 percent.

A euro-area composite index based on a survey of purchasing managers was 46.5 in April, below the level of 50 that separates contraction from expansion, London-based Markit Economics said. A gauge of German manufacturing fell to 47.9, from 49, it said.

ECB Vice President Vitor Constancio said policy makers are ready to provide more stimulus if data keep suggesting a need. Inflation rates have “declined rapidly” to 1.7 percent in March, Constancio said to lawmakers in Brussels on April 24. The ECB aims to keep inflation just below 2 percent.

“Added weakness in activity indicators and continued easing in inflation indicators will raise the pressure on the ECB to provide more stimulus,” said Jonathan Loynes, an economist at Capital Economics Ltd. in London. “What form that will come in -- interest-rate cuts, long-term refinancing operations or even bolder steps -- remains to be seen. The hurdles to the ECB undertaking some form of quantitative easing are a lot lower than some people would suggest.”

Sterling Gains

The pound rose the most in a single day since July against the dollar after a government report showed the U.K. economy grew more last quarter than analysts forecast, ensuring the nation avoided another recession.

The currency advanced after the Office for National Statistics said gross domestic product increased 0.3 percent in the first quarter. The median forecast of economists in a Bloomberg News survey was for growth of 0.1 percent.

Sterling ended the week at $1.5473 and touched $1.5499, the highest since Feb. 19. It jumped 1.1 percent on April 25, the most since July 26. The pound rose 1.8 percent to 84.19 pence per euro and reached 83.98, the strongest since Jan. 24.

BOJ Stimulus

The yen gained yesterday after the BOJ maintained its pledge to double its monetary base in two years. It predicted a gauge of consumer prices will almost match its 2 percent target by next fiscal year, reducing the need for more stimulus.

The central bank announced the stimulus program of increased asset purchases, mainly of government bonds, on April 4 after its previous meeting.

Japanese investors cut their holdings of overseas bonds for a sixth straight week through April 19, Ministry of Finance data showed on April 25, damping speculation they are sending more funds abroad in search of higher yields.

“What makes people uncertain is that we still haven’t seen any indication of Japanese flows into foreign assets,” said Beat Siegenthaler, a senior foreign-exchange strategist at UBS AG in Zurich.

The yen climbed yesterday as investors sought safety after data showed U.S. gross domestic product rose at a 2.5 percent annual rate in the first quarter. Economists surveyed by Bloomberg forecast a 3 percent gain.

The Federal Reserve, which is buying $85 billion of bonds a month to hold down borrowing costs and spur economic growth, opens a two-day meeting on April 30.

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