Yen Falls as Stimulus Curbs Hunger for Haven Assets; Euro Gains

The yen dropped to almost a seven-year low versus the dollar as central banks worldwide add to monetary stimulus, damping demand for low-yielding haven assets such as Japan’s.

The 18-nation euro rose against the U.S. currency after European Central Bank Governing Council member Jens Weidmann said expanding bond purchases to government debt would face “legal hurdles.” Russia’s ruble added to its longest run of gains in more than a year, while Brazil’s real fell from a two-week high as President Dilma Rousseff refrained from announcing her choice for the position of finance minister.

“Dollar-yen is back at the highs,” said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. “It’s still one of the most compelling macro stories.”

The yen depreciated 0.4 percent against the dollar to 118.27 at 5 p.m. in New York, having touched 118.98 on Nov. 20, the weakest level since August 2007. It dropped 0.8 percent to 147.15 yen per euro. The common currency gained 0.4 percent to $1.2442, having dropped to $1.2358 on Nov. 7, the lowest since August 2012.

Winners, Losers

The yen leads losses versus the dollar this month, falling 5 percent, followed by South Korea’s won, which is down 3.9 percent. New Zealand’s dollar has gained 0.9 percent, according to data compiled by Bloomberg.

The U.S. currency has strengthened against all of its 16 major peers this year, with the Swedish krona losing 13.5 percent and Japan’s currency dropping 11 percent.

The ruble strengthened 1.6 percent to 44.9970 per dollar today, paring this month’s losses to 4.6 percent. The currency rose the most of the greenback’s 31 major peers following steps taken by the central bank to stem speculative flows.

Russia’s central bank announced on Nov. 10 that it will end its previous intervention policy, bringing forward plans to float the ruble and restricting access to local-currency funds.

Brazil’s real was the biggest loser of the day, declining 1.2 percent to 2.5461 per dollar. The real led global currency gains on Nov. 21 after Folha de S.Paulo reported that former Treasury Secretary Joaquim Levy would be named finance minister.

Brazil Policy

“There are rumors that Rousseff’s party is pressuring for a different name for finance minister,” Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview. “The fact that the president is taking her time to make the announcement isn’t helping. Markets will be very volatile this week.”

The euro rose for the first time in three days versus the dollar as a business sentiment gauge beat estimates and ECB policy makers weighed the central bank’s scope for further easing.

The German Ifo institute’s business climate index, based on a survey of about 7,000 executives, rose to 104.7 in November from 103.2 in October. Economists predicted a decline to 103, according to the median of estimates in a Bloomberg survey.

The shared currency fell the most since the five days ending Oct. 31 last week after ECB President Mario Draghi said policy makers “will do what we must” to boost consumer prices.

ECB Watch

The central bank won’t make a hasty decision on further stimulus and will hinge any measures on incoming data, Executive Board member Benoit Coeure said today. Purchasing government debt comes with legal obstacles and it is no panacea, Governing Council member Weidmann said.

“The majority have probably shifted to the view that the ECB will deliver, but it’s not a done deal,” said BNP’s Serebriakov. “Markets are probably going to be in this slightly back-and-forth mode, reacting to the headlines, going into the December meeting.”

The ECB meets Dec. 4 to discuss further measures to support the economy, after reducing rates to record lows and announcing a program to buy covered bonds and asset-backed securities. China joined Europe in easing its monetary policy last week, surprising markets with its first interest-rate cut since 2012. The Bank of Japan maintained its pace of monetary base expansion.

The stimulus moves “should keep risky assets well-supported, and by corollary, weaken the yen,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “The yen will probably weaken toward 125 against the dollar by the end of next year, if not before. The key catalyst is the combination of further BOJ easing and U.S. monetary policy normalization.”

Divergent Growth

The yen has fallen as Japan’s Prime Minister Shinzo Abe seeks to renew his mandate for economic stimulus after calling early elections. The nation entered a recession in the third quarter, a report showed last week.

The Federal Reserve is moving to raise interest rates for the first time since 2006 after curtailing its program of bond buying last month. The Bloomberg Dollar Spot Index is poised for its fifth consecutive month of gains, the longest streak since the period ending March 2013.

“It’s still the divergent-growth, divergent-policy story,” Robert Sinche, a global strategist at Amherst Pierpont Securities LLC in Stamford, Connecticut, said by phone. “We are seeing capital flows out of Japan, both official and unofficial, and I think that helps bring capital out and continues this movement down in the yen.”

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