Yen Breach of 100 Per U.S. Dollar Foreshadows More Weakness

The yen is poised to weaken even further versus the dollar after breaking a key support level at 100 for the first time in four years, trading patterns show.

The Japanese currency will pass through support at 101.69 per dollar before completing a so-called triangle pattern in the range from 103.32 to 104, according to Bank of America Corp. A fall to 104 would be the yen’s lowest level since October 2008. A triangle pattern is formed when upper and lower trend lines intersect. Bank of America has a year-end forecast of 105.

“As we’ve broken out from the triangle, it’s a resumption of a larger bull trend and should have enough energy that we get a run up to the 103 or 104 area,” MacNeil Curry, chief rates and currencies technical strategist in New York at Bank of America, said in a telephone interview. “You tend to see very strong moves transpire at the end of a triangle pattern.”

The yen extended declines today, falling 0.7 percent to 101.27 as of 10:39 a.m. London time. Yesterday it weakened as much as 1.8 percent, the biggest intraday drop since April 8. Japan’s currency depreciated 0.4 percent to 131.74 per euro today, reaching the weakest level since January 2010.

The 100-per-dollar level was a key bearish point because it represented a so-called 50 percent Fibonacci retracement between its high of 75.35 in November 2011 and a decade-low of 124.14 in 2007.

Bond Purchases

Fibonacci retracement is named after a 12th century Italian mathematician and based on the theory that prices rise or fall by predictable amounts after reaching a high or low. In this and other forms of technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a currency, security or index. Support refers to the lower boundary of a trading range, where buy orders may be clustered.

Analysts drew the yen’s 50 percent Fibonacci retracement at the 100-per-dollar level because that price represented half of the currency’s losses against the greenback from 2007 to 2011. The yen has weakened 13 percent this year, the most among the 10 developed-nation currencies monitored by Bloomberg Correlation-Weighted Indexes.

The Bank of Japan increased monthly bond purchases on April 4 to exceed 7 trillion yen ($69 billion) at BOJ Governor Haruhiko Kuroda’s first policy meeting in charge, exceeding the 5.2 trillion yen forecast by economists in a Bloomberg News survey. It also suspended a cap on some bond holdings and dropped a limit on debt maturities.

Policy makers maintained the unprecedented plan at an April 26 meeting and predicted inflation will almost match their target in two years even after a report highlighted deflation’s grip.

Inflation Goal

Kuroda told reporters after the second April meeting that policy adjustments would be made if necessary and the bank will keep its stimulus until stable 2 percent gains in consumer prices are realized.

“We’re opening up the door to look at 105 in the next few months, and 110 by end of year seems perfectly reasonable,” Alan Ruskin, global head of Group of 10 foreign-exchange strategy in New York at Deutsche Bank AG, the biggest currency trader in a Euromoney Institutional Investor Plc poll, said yesterday in a telephone interview.

The yen erased an earlier advance versus the dollar yesterday after U.S. applications for unemployment insurance payments decreased by 4,000 to 323,000 in the week ended May 4, the least since January 2008, Labor Department figures showed. Economists forecast 335,000 claims, according to the median estimate in a Bloomberg survey. The average over the past month was the lowest since before the last recession began.

‘Dollar Strength’

“Across the board, we’re seeing dollar strength, not just yen weakness, which should push dollar-yen even higher,” Curry said yesterday.

Japan’s currency extended losses beyond 101 after a Treasury auction of $16 billion in 30-year bonds produced a lower-than-forecast yield.

While Kuroda’s April 4 announcement spurred speculation that domestic money managers would seek higher yields in the U.S. and other markets. Ministry of Finance data today showed that Japanese investors became net buyers of foreign debt in the weeks ended April 26 and May 3, snapping a six-week streak of net selling that was the longest since January 2010.

The yen will be at 104 per dollar at year-end, according to the median of economist estimates compiled by Bloomberg. Of those polled, 41 saw the currency at 100 yen per dollar or weaker.

UBS AG raised its forecasts for the dollar against the yen, currency strategist Gareth Berry wrote in a client note. The bank, which is the fourth-biggest currency trader according to a Euromoney Institutional Investor Plc survey, sees the yen trading at 102 per dollar in one month and at 105 within three months, compared to previous estimates of 95 for both periods.

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