Yen Rises After BOJ Minutes Indicate Monetary-Stimulus Limits

The yen strengthened against most of its 16 major counterparts after minutes from the Bank of Japan’s latest meeting showed one policy maker advocated restricting stimulus to a two-year period.

Japan’s currency advanced for a fourth day versus the dollar as the International Monetary Fund said it sees the Federal Reserve maintaining monthly bond purchases until at least the end of this year. The greenback rose versus the euro as a report a report showed wholesale prices increased more than forecast last month while industrial production was unchanged and June consumer confidence fell from a six-year high. The pound weakened from a four-month high versus the dollar as April construction data declined.

“The rebound in the yen has been going for a few weeks now and all the positions have been shaken out,” said Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal, by phone from New York. “The economic data out this morning was a little bit dollar-positive. We’ll probably get a bit of a dollar uplift into the weekend.”

The yen strengthened 1.1 percent to 94.31 per dollar at 5 p.m. in New York, extending its advance this week to 3.3 percent. Japan’s currency appreciated 1.5 percent to 125.60 per euro after rising 0.4 percent yesterday. The dollar gained 0.2 percent to $1.3347 per euro.

Futures Positions

Futures traders increased their wagers the Australian dollar will decline against its U.S. counterpart to the most ever, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the so-called Aussie compared with those on an increase -- so-called net shorts -- was 63,277 on June 11, compared with net shorts of 58,550 a week earlier.

The JPMorgan Global FX Volatility Index rose to 11.43 percent yesterday, the most since June 2012. The gauge has climbed from 7.05 percent in December, which was the lowest since July 2007, and was at 10.6 percent today.

The pound weakened against the dollar after advancing to a four-month high yesterday. Sterling dropped 0.1 percent to $1.5707 after climbing to $1.5738 yesterday, the highest level since Feb. 11. The pound fell after the Office for National Statistics said U.K. construction volume fell 6.5 percent in April from a month earlier.

Pound Patterns

“There is a consolidation today in the pound after reaching critical levels yesterday,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in London. Sterling “was not being able to take out the 200-day moving average at just above $1.57, so it’s come off that. That is one of those levels people definitely follow.”

The Turkish lira gained for a fourth day against the dollar after the prime minister met with protesters to try to end more than two weeks of unrest. The lira gained 0.1 percent to 1.8592 per dollar after sliding to 1.9092 on June 11, the weakest since December 2011.

South Korea’s won rose the most in two months as Asian equities rebounded. The won rose 0.7 percent to 1,126.25 per dollar.

One-month implied volatility of the dollar-yen currency pair reached 18.9 percent yesterday, the most since March 2011, and was at 16.1 percent today.

Central Bank

The BOJ should specify a two-year limit for its unprecedented monetary easing to help quell bond-market volatility, according to one of the central bank’s board members cited in the minutes of the May 21-22 meeting released today.

The central bank could state that easing “should be restricted to about two years” and then be reviewed “in a flexible manner,” the board member said, according to the record of the meeting.

“For a Bank of Japan board member to advocate restricting the quantitative-easing program to just two years is a concern to the market,” said Alvin Tan, a director of foreign-exchange strategy at Societe Generale SA in London. “Yen strength can continue while we don’t get clarity out of Japan on this. We believe that the Fed’s exit will be tentative and drawn out.”

The yen has slumped 6.4 percent this year, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, as the Bank of Japan embarked upon unprecedented stimulus to spur growth. The euro gained 3.8 percent and the dollar added 2.4 percent.

Dollar Gains

The dollar strengthened versus most of its major peers as producer price index rose 0.5 percent in May, according to a Labor Department report released today in Washington. The median estimate in a Bloomberg survey of 76 economists projected the index would gain 0.1 percent.

Unwinding a policy of record-low interest rates and $85 billion in monthly bond-buying known as quantitative easing will be challenging even though the Fed has “a range of tools” to withdraw the stimulus, the IMF staff wrote in its annual assessment of the U.S. economy.

While the IMF report will likely be taken with a “grain of salt” by the market, “it’s at least one argument towards keeping quantitative at least through the end of year,” said Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, by phone from Stamford, Connecticut.

Fed policy makers next meet on June 18-19 after Chairman Ben S. Bernanke said on May 22 the central bank could reduce its monthly purchases of $45 billion of Treasuries and $40 billion of mortgage-backed securities, known as quantitative easing, if the employment outlook shows sustainable improvement.

“People perceive the idea that the Fed is itching really to remove QE, not really because the data has changed, but because the costs related to QE are seen as too high to bear at this point,” said Alan Ruskin, global head of Group of 10 foreign-exchange strategy at Deutsche Bank in a interview with Tom Keene and Scarlet Fu on Bloomberg Television’s “Surveillance.”

The Dollar Index, which Intercontinental Exchange Inc. uses to monitor the greenback against the currencies of six U.S. trade partners, dropped 0.2 percent to 80.617 after falling to 80.500 yesterday, the lowest since Feb. 20.

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