Yen Weakens on Outlook for Further BOJ Stimulus; Aussie Advances

The yen fell against all of its 16 major counterparts on speculation the biggest gain in three years yesterday was too rapid amid forecasts for further monetary stimulus from the Bank of Japan.

Japan’s currency weakened for the third time in four days against the dollar after a government report showed machine orders dropped more than economists forecast. The U.S. currency gained the most this month versus the euro before a report tomorrow projected to show retail sales increased. Australia’s currency climbed from almost a three-year low after consumer confidence increased.

“We’re seeing a bit of a rebound in some short-yen positions after a panicked move yesterday,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “People might have to get used to a more-choppy path with a couple dollar-yen drops along the way. Structural arguments for a weaker yen still remain.” A short position is a bet that an asset will decline in value.

The yen fell 0.5 percent to 96.48 per dollar at 9:16 a.m. in New York after jumping 2.8 percent yesterday. Japan’s currency declined 0.3 percent to 128.24 per euro, following a gain of 2.4 percent yesterday. The dollar rose 0.2 percent to $1.3293 per euro, touching the biggest advance on a closing basis since May 31.

One-year implied volatility for the dollar-yen climbed to 16.03 percent, its highest level since March 2011.

Rand, Pound

South Africa’s rand strengthened for a second day as investors gauged the country’s worst bond selloff in four years was overdone. The currency increased 1.3 percent to 9.9427 per dollar.

The British pound rose for a second day versus the euro, reaching the strongest level in more than three weeks, after a report showed U.K. jobless claims fell more than economists forecast in May. Sterling gained 0.3 percent to 84.83 pence per euro after earlier climbing the strongest level on a closing basis since May 20.

India’s rupee rebounded a day after falling to a record low versus the dollar as the government said it is considering options to spur inflows and Fitch Ratings revised the nation’s credit-rating outlook to stable from negative. The currency appreciated 1 percent to 57.7900, after reaching its biggest gain on a closing basis since Jan. 18.

JPMorgan Chase & Co.’s Global FX Volatility Index fell to 10.53 percent after rising to 10.59 percent yesterday, the highest since June 2012.

Economic Outlook

The dollar rose against the yen and euro amid speculation an improving U.S. economy will encourage the Federal Reserve to scale back asset purchases that tend to devalue a currency.

Sales at U.S. retailers increased 0.4 percent last month, following a 0.1 percent gain in April, according to a Bloomberg News survey of economists before the Commerce Department releases the figures tomorrow.

“The U.S. economy is going to re-accelerate in terms of its growth path going into the second half of this year,” Kathy Matsui, chief Japan equity strategist at Goldman Sachs Group Inc. in Tokyo, said in a Bloomberg Television interview. Markets “will start to drive interest rates in the U.S. higher, and that widening interest-rate differential between the U.S. dollar and Japanese yen will help weaken the yen.”

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major trading partners, rose 0.1 percent to 81.156 after falling to 81.034 yesterday, the lowest on a closing basis since Feb. 19.

Aussie Bounce

Australia’s dollar snapped a three-day slide versus the U.S. currency as a technical indicator signaled recent selling was overdone. The relative-strength index versus the greenback fell to 30.7 yesterday, near the 30 level that some traders see as a sign the price has fallen too rapidly and is poised to change direction.

The so-called Aussie has tumbled 8.3 percent since the end of March, set for the biggest quarterly decline since the period ended September 2011.

There are “probably quite a few people who’ve got short the Australian dollar near the lows yesterday, and they’re now suffering a painful squeeze,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney. “At the moment, there’s the potential for a squeeze up to 95 or 96” U.S. cents, he said.

The Aussie gained 1.1 percent to 95.26 U.S. cents after falling to 93.26 yesterday, the weakest since September 2010. New Zealand’s dollar rose the most out of the greenback’s 16 most-traded counterparts, appreciating 1.5 percent to 79.92 U.S. cents.

Japan Policy

The BOJ refrained from adding stimulus or expanding its toolkit for tackling volatility in bonds after a policy meeting yesterday. Governor Haruhiko Kuroda said the central bank would discuss longer fund operations when needed to calm markets.

Japanese machine orders dropped 8.8 percent in April from March after rising for the previous two months, the Cabinet office said in Tokyo. Economists surveyed by Bloomberg News forecast a decline of 8.1 percent.

The yen has slumped 8.3 percent this year, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 4 percent and the dollar strengthened 3.1 percent.

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