Yen Surges Most Since 2010 as BOJ Refrains From Adding Stimulus

  • Gain is biggest since day of `flash crash' in U.S. equities
  • Slight majority of economists had predicted some policy action

BOJ Surprise: Kuroda's Act of Market Defiance?

The yen surged by the most since 2010 after the Bank of Japan maintained its record stimulus, surprising traders who had expected additional easing and forcing them to exit bets on declines in the currency.

Japan’s currency rose against all of its 16 major peers as BOJ Governor Haruhiko Kuroda and his colleagues opted to refrain from more policy action and to take more time to assess the impact of their negative interest-rate program. A slight majority of economists surveyed by Bloomberg predicted the central bank would respond to a strengthening yen that’s cast a shadow over prospects for higher wages and investment.

“The failure to act is triggering a further loss of investor confidence in Abenomics and unwinding of yen weakness,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The BOJ had an opportunity to at least temporarily short-circuit the yen trend but failed to act -- it has provided the green light for further yen strength in the near-term.”

The yen jumped 2.6 percent to 108.11 per dollar at 11:19 a.m. New York time. It touched the largest drop since May 6, 2010, the day a trading frenzy known as the “Flash Crash” saw almost $1 trillion briefly wiped from the value of American equities.

Standing Pat

The yen’s ascent was aided by the Federal Reserve’s decision Wednesday to maintain the status quo on policy. While this was forecast by economists in a Bloomberg survey, the Fed’s statement gave little clarity on the prospect of a rate increase in June, which weighed on the greenback.

An advance to about 107.6 to 105 yen per dollar is possible in the near-term, BTM’s Hardman said. Japan’s currency also surged 2.7 percent to 122.86 per euro.

BOJ board members Thursday left unchanged three key easing tools -- the 80 trillion-yen ($740 billion) target for expanding the monetary base, mostly through bond purchases, the 0.1 percent negative rate on a portion of the cash lenders park at the central bank, and a program to buy riskier assets including stocks.

Slower Inflation

A report earlier showed Japan’s core consumer-price index sank last month by the most since April 2013, when Kuroda initiated his stimulus program, underscoring difficulties in breaking free of deflation.

Friday is the start of an extended period of Japanese national holidays, known locally as Golden Week. The nation’s financial markets will be shut April 29 and May 3-5.

Officials at the Federal Open Market Committee skipped an interest-rate hike for the third straight meeting on Wednesday, even as the statement suggested a more upbeat outlook for the U.S. and ebbing concern on the global economy. Policy members refrained from signaling that any monetary tightening was around the corner.

The Bloomberg Dollar Spot Index, which measures the greenback against 10 major global peers, fell 0.8 percent. The measure has declined more than 5 percent this year.

“The market continues to determine that the Fed” is in no rush to raise rates, Jane Foley, a senior currency strategist at Rabobank International in London, wrote in a client note.

She predicted the Fed may still tighten policy in June, hurting the yen against the dollar, but said that Japan’s currency would remain strong in the near term on the “perception that the BOJ is running out of road” on monetary stimulus.

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