Yen Weakens Past 105 Per Dollar on Policy Outlook; Aussie Drops

The yen weakened beyond 105 per dollar for the first time since October 2008 on speculation the Bank of Japan will keep easing monetary policy to sustain a recovery as the Federal Reserve pares its debt purchases.

Japan’s currency headed for a nine-week drop, the longest loss since February, after data yesterday showed initial U.S. jobless claims fell more than economists forecast. It slid to a five-year low against the euro as Asian stocks rose for a ninth day, reducing the appeal of the yen as a haven. The majority of analysts polled by Bloomberg News see the BOJ increasing bond buying by June next year. Australia’s dollar was set for a 10th weekly decline, the longest streak in more than three decades.

“Assuming Fed tapering does proceed in a reasonably smooth manner, and we do see a step up in the pace of the BOJ’s quantitative easing, you could still argue that’s more consistent with dollar-yen nearer 110 than 100,” said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “The relationship between between global stocks -- and Japanese stocks in particular -- and dollar-yen seems to be intact.”

The yen was little changed at 104.82 per dollar as of 1:21 p.m. in Tokyo from yesterday, after weakening to 105.03 for the first time since October 2008. The Japanese currency dropped 0.3 percent to 143.95 per euro, after reaching 144.06. The euro gained 0.3 percent to $1.3735. Australia’s dollar fell 0.1 percent to 88.87 U.S. cents.

The MSCI Asia Pacific Index rose 0.2 percent, while Japan’s Topix index gained 0.3 percent, after closing yesterday at its highest since 2008.

Weekly Declines

The yen has tumbled 0.7 percent against the dollar this week, and 1.1 percent versus the euro. Australia’s currency has dropped 0.4 percent against its U.S. peer since Dec. 20.

Japan’s industrial production expanded less than economists forecast last month. The preliminary figure released by the government today showed factory output gained 0.1 percent from October, compared with a median estimate for a 0.4 percent increase in a Bloomberg poll.

The nation’s consumer prices excluding fresh food rose 1.2 percent in November from a year earlier, official figures also showed today. The BOJ is targeting 2 percent inflation in 2015.

The central bank is buying more than 7 trillion yen ($66.8 billion) of government bonds each month in an attempt to end 15 years of deflation. Policy makers see significant scope to boost bond purchases if necessary to achieve their 2 percent inflation target, according to people familiar with the discussions.

Fed Tapering

The Fed said Dec. 18 it plans to cut monthly asset purchases in January to $75 billion from $85 billion. Policy makers will probably reduce bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said in a Bloomberg survey published Dec. 19.

The Bloomberg ECO U.S. Surprise Index, which tracks the degree to which analysts under- or over-estimate trends in the business cycle, rose to the highest since July this month.

“The U.S. data has been coming in quite strong since the Fed decided to start tapering, while the market has expectations that in Japan stimulus could be increased,” said Etsuko Yamashita, the chief economist in New York at Sumitomo Mitsui Banking Corp. “A lot of people think dollar-yen will keep pushing higher next year.”

Futures traders increased bearish bets on the yen to a six-year high this month, 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 versus the greenback compared with those on a gain -- so-called net shorts -- was 133,383 on Dec. 6, the most since July 2007.

The yen has slumped 16 percent this year, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 3.9 percent, while the euro has been the best performer with an 8.6 percent gain. The Aussie has dropped 13 percent.

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