Yen's Reign as Week's Best Performer Faces Fed, BOJ Challenges

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  • Kuroda wants to keep `easing card' until last moment: Yoshida
  • Odds of Fed liftoff this year have risen to 50%, futures show

The yen was set to be the best-performing Group of 10 currency this week before the Bank of Japan decides whether to expand unprecedented stimulus at a policy meeting Friday.

Japan’s currency strengthened for the first time in three days versus the dollar after data Thursday showed industrial production unexpectedly increased in September, tempering speculation Governor Haruhiko Kuroda and his colleagues will boost monetary easing. The dollar headed for a monthly gain against the euro and yen on speculation the Federal Reserve will raise interest rates by December while the European Central Bank and BOJ flood their financial systems with cash.

“The BOJ is likely to refrain from easing today as it wants to keep an easing card up its sleeve in case of significant shocks,” said Mitsuhiro Yoshida, an officer for global markets at Sumitomo Mitsui Trust Bank in New York. “Both the ECB and the Fed are working on expectations in markets, while maintaining their policy, so I expect the BOJ to also keep easing bias with words rather than action today.”

The yen appreciated 0.2 percent to 120.86 per dollar as of 12:02 p.m. in Tokyo, extending this week’s advance to 0.5 percent. Japan’s currency climbed 0.1 percent to 132.79 per euro. The dollar was little changed at $1.0987 per euro, poised for a gain of 1.7 percent in October.

Kuroda and his board will bolster monetary policy on Friday, according to 16 of 36 analysts surveyed by Bloomberg from Oct. 21 to Oct. 26. Eight forecast further easing at a later date and 12 saw no prospect of change in the foreseeable future.

BOJ policy makers see the factory output data released Oct. 29 as crucial to any decision on stimulus, people with knowledge of discussions at the central bank said this month.

“We lean towards no change but can see why markets are on edge,” Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney, wrote in a research note. “While Governor Kuroda has not hinted at a policy change, he was similarly opaque a year ago.”

The BOJ unexpectedly expanded stimulus in October 2014, giving it enough scope to buy every new bond the government issues. The yen slid to a 13-year low of 125.86 per dollar in June, and has since strengthened about 4 percent as China’s surprise devaluation of the yuan in August led to turmoil in global financial markets.

The increased volatility helped pushed the odds of Fed liftoff by year-end to as low as 27 percent on Oct. 14, according to Bloomberg calculations based on futures. The probability climbed to 50 percent Friday after policy makers signaled this week they may still move in 2015. The calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, versus the current range of zero to 0.25 percent.

New Zealand’s dollar rose for the first time in four days after ANZ Bank New Zealand Ltd. said its index of the nation’s business confidence turned positive this month. The kiwi climbed 0.6 percent to 67.36 U.S. cents.

(An earlier version of this story corrected the spelling of New Zealand.)