Yen Weakens Beyond 101 as Yield Difference Widens

The yen weakened past 101 per dollar for the first time since July as yields on U.S. securities rose to the highest relative to Japan’s since September amid the nations’ diverging monetary policies.

The euro rose to a four-year high versus Japan’s currency as European Central Bank President Mario Draghi damped speculation of negative deposit rates. The yen fell versus most major peers after the Bank of Japan stuck to its pledge to expand the monetary base a day after the Federal Reserve signaled a reduction in asset purchases “in coming months.” The franc fell against the euro as a Swiss National Bank board member said the central bank will maintain the currency’s cap.

“The Federal Open Market Committee minutes yesterday have opened the door for December tapering again, and you’re seeing some dollar support,” Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York, said in a phone interview. “On the other hand in Japan, there seems no end in sight for their monetary easing.”

The yen fell 1.1 percent to 101.16 per dollar at 5 p.m. New York time, the weakest level since July 10. Japan’s currency slid 1.4 percent to 136.37 per euro after declining to 136.40, the lowest since October 2009. The euro rose 0.3 percent to $1.3482.

The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major counterparts, rose 0.2 percent to 1,020.97 after advancing 0.4 percent yesterday. The dollar gauge breached its 100- and 200-day moving averages as it approached a two-month high.

Franc, Aussie

SNB board member Fritz Zurbruegg said today in Geneva the upper limit on the haven franc “remain a necessary instrument for the foreseeable future.” Citing the risk of deflation and a recession, Zurich-based central bank set a cap of 1.20 per euro on the currency in September 2011, threatening unlimited interventions to defend it.

The Swiss currency was at 1.2307 per euro, from 1.2313 yesterday. It rallied 1.5 percent to 110.81 yen, another refuge destination, the biggest jump in two months and the highest level since August 1990.

The Australian dollar fell the most in four months versus the U.S. currency as Reserve Bank Governor Glenn Stevens said in Sydney he was “open-minded” on intervention. The currency climbed almost 50 percent in the four years ended Dec. 31 as the nation escaped the 2009 global recession and a China-led mining investment boom spurred growth.

The Aussie dropped 1.1 percent to 92.34 U.S. cents after sliding to 91.99 cents, the weakest since Sept. 9.

Rupiah, Ringgit

Emerging-market currencies plunged after minutes of the Fed’s Oct. 29-30 meeting released yesterday showed policy makers “generally expected” improvement in employment data that would “warrant trimming the pace of purchases in coming months.” The central bank buys $85 billion of Treasuries and mortgage-backed securities a month. The Fed next meets on Dec. 17-18.

Indonesia’s rupiah dropped to the lowest level in more than four years. The currency fell 0.4 percent to 11,703 per dollar, prices from local banks showed. It reached 11,733 earlier, the weakest level since March 31, 2009.

Malaysia’s ringgit fell by the most in two months, tumbling 0.7 percent to 3.2050 per dollar. That’s the biggest drop since Sept. 30.

“These minutes should provide some support for the U.S. dollar,” David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne, wrote in a note to clients. “Tapering expectations look only to have been delayed somewhat, with perhaps the Fed only one or two further good payroll numbers away from beginning to reduce its asset purchases.”

‘Yield Differential’

Japan’s central bank kept its pledge to expand the monetary base by as much as 70 trillion yen ($69 billion) a year at today’s meeting. Nineteen of 37 economists surveyed by Bloomberg said policy makers will add stimulus in the second quarter of 2014 after a planned increase in sales tax, with seven saying it will ease in the July-September period.

The extra yield on 10-year U.S. Treasuries over their similar-maturity Japanese counterparts expanded to 2.19 percentage points yesterday, the widest since Sept. 12 based on closing prices, and was at 2.16 today.

“The yield differential is a key driver of dollar-yen,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a phone interview. “The dollar, reacting positively towards the possibility of an earlier taper and yields moving higher, are pushing dollar-yen higher.”

Relative Strength

The yen tumbled 12 percent this year, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3.9 percent and the euro advanced 6.5 percent.

The Japanese currency’s 14-day relative strength index against the greenback was at 69.8 today, approaching the 70 threshold which indicates the currency’s decline may be losing momentum.

Currency volatility increased for a third day with the JPMorgan Chase & Co. Group of Seven Volatility Index climbing as high as 8.07 percent, the most since Nov. 14.

The euro rose, paring yesterday’s 0.7 percent drop versus the dollar, after the ECB’s Draghi said policy makers haven’t changed their mind on a negative deposit rate since they cut the benchmark rate to a record low on Nov. 7.

Trading in over-the-counter foreign-exchange options totaled $58 billion, from $57 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $20 billion, the largest share of trades at 35 percent. Options on the Aussie-dollar rate totaled $5.8 billion, or 10 percent.

Dollar-yen options trading was 101 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Aussie-greenback options trading was 125 percent above average.

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