Yen Rises as BOJ Retains Stimulus Plan; Aussie Gains

The yen strengthened against the dollar, snapping a three-day drop, after the Bank of Japan refrained from adding a stimulus plan that had sent the currency tumbling when it was expanded in October.

Australia’s dollar climbed and New Zealand’s currency rallied after stocks in Asia advanced, reviving demand for higher-yielding assets. The euro rose before the European Central Bank decides whether to buy sovereign bonds under quantitative easing. Malaysia’s ringgit slid for a third day after Fitch Ratings warned it may cut the nation’s rating.

“Given we’ve got the ECB tomorrow and expectations are pretty high there, and given the SNB, there has been at least some residual expectation that we would see some action” from the Bank of Japan, said Mitul Kotecha, head of Asia-Pacific currency strategy at Barclays Plc in Singapore, referring to the Swiss central bank scrapping its currency cap. “There’s some dawning realization now that the Bank of Japan weren’t going to follow suit,” leading the yen to strengthen, he said.

The yen gained 1 percent to 117.66 per dollar at 6:53 a.m. in London from yesterday. It rose 0.7 percent to 136.31 yen per euro. The euro gained 0.3 percent to $1.1580.

Australia’s dollar climbed 0.7 percent to 82.26 U.S. cents. New Zealand’s kiwi gained 0.4 percent to 76.67 U.S. cents, rebounding from a 1.9 percent loss yesterday.

BOJ Decision

The yen gained against all of its 16 major counterparts after the BOJ’s decision disappointed some investors who had expected the central bank to boost its record stimulus plan last expanded on Oct. 31, according to Satoru Igarashi, a senior foreign-exchange strategist at Mizuho Securities Co.

Japan’s central bank today retained its plan to increase the monetary base at an annual pace of 80 trillion yen ($679 billion). The BOJ cut its inflation projection to 1 percent for the fiscal year starting in April, while raising its forecast for gross domestic product to 2.1 percent.

“The most important element of today’s meeting were Board members’ updated forecasts for inflation and GDP growth,” Marcel Thieliant, an economist in Singapore at Capital Economics, wrote in a note to clients. “If anything, these projections were more optimistic than we had expected.”

Australia’s dollar was the third-biggest gainer against the greenback, after the yen and Swiss franc, as the MSCI Asia Pacific Index advanced 0.9 percent.

Aussie, Kiwi

The Aussie gained as “risk-on” sentiment increased after overseas stock markets advanced, China reported better-than-expected economic data yesterday and speculation remained that the ECB will expand stimulus tomorrow, Will Leys, a sales trader at CMC Markets in Sydney, wrote in an e-mail.

New Zealand’s dollar rebounded after dropping earlier on a report that showed consumer prices fell for the first time in two years, giving the Reserve Bank scope to keep borrowing costs on hold for an extended period.

The euro rallied before the ECB sets monetary policy tomorrow. The central bank will announce a 550 billion-euro ($637 billion) bond-purchase program this week, according to 93 percent of respondents in a Bloomberg survey of economists. That would top the 500 billion euros in models presented to ECB officials this month.

“We think the ECB will come out with a stimulus program about 500 billion euros,” Roy Teo, a Singapore-based strategist at ABN Amro Group NV, said in an interview with Rishaad Salamat on Bloomberg Television’s On the Move. “That is quite what is the market consensus and if they fail to give up with more forward guidance about what is to come, potentially we could see more short covering in euros.”

Malaysia’s ringgit extended a three-month loss to almost 10 percent, the worst in Asia, after the government’s increase to the fiscal deficit target prompted Fitch Ratings to warn of a credit-rating downgrade. The currency was already trading at its lowest since 2009 before Prime Minister Najib Razak yesterday raised the 2015 deficit projection to 3.2 percent of gross domestic product from 3 percent.

The ringgit fell 0.2 percent to 3.6158 per dollar.

(Corrects details of Australian dollar gains in paragraph above ‘Aussie, Kiwi’ subhead.)
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