Yen Slumps on Speculation of Additional Monetary Easing by BOJ

Updated on
  • Currency forecast to weaken 5% versus dollar by year-end
  • Former MoF official says BOJ could ease in June or July

The yen dropped against all of its 31 major peers on speculation of further monetary easing by the Bank of Japan as soon as next month.

Japan’s currency fell for the third time in four days versus the dollar after Reuters reported that Takatoshi Ito, a professor at Columbia University, said the BOJ could ease in June or July if inflation indicators weaken and stock prices drop. He was a deputy to central-bank chief Haruhiko Kuroda at the Ministry of Finance in 1999 and 2000. The yen was also undermined as oil climbed for a third day, damping demand for assets considered to be havens.

The yen has slipped from last week’s 18-month high versus the greenback after Kuroda and Finance Minister Taro Aso re-iterated that Japan is able to intervene to stabilize foreign-exchange markets if necessary.

“Typically the market isn’t impressed by words for too long,” said Esther Reichelt, a Frankfurt-based currency strategist at Commerzbank AG. “If there isn’t anything done to actually weaken the yen, I expect dollar-yen to fall again. There are just a lot of unanswered questions with the yen.”

Japan’s currency weakened 0.8 percent to 109.24 per dollar at 9:06 a.m. in New York, after gaining 0.8 percent on Wednesday. It dropped 0.5 percent to 124.50 per euro.

Decline Forecast

The yen is forecast to depreciate to 115 per dollar by year-end, according to the median estimate in a Bloomberg survey of analysts -- a decline of about 5 percent from current levels.

A weaker yen has been a key ingredient of BOJ Governor Kuroda’s efforts to boost inflation to 2 percent through monetary stimulus.

The currency had been gaining since the central bank unexpectedly refrained from boosting stimulus at its April 27-28 meeting. Japan’s current-account surplus makes it less dependent on foreign capital, giving the currency a haven status. Data Thursday showed Japan posted its 21st consecutive monthly surplus.

Prime Minister Shinzo Abe is set to host his counterparts from the Group of Seven later this month, where he’s likely to push other leading economies to step up fiscal spending.

“The next focus for dollar-yen could be the summit in Japan later this month to see whether there would be an agreement on coordinated fiscal policy,” said Takuya Kanda, a senior researcher at Research Institute Ltd. “If there is an agreement, that could ease concerns about global deterioration and buoy risk sentiment and weaken the yen.”

— With assistance by Chikako Mogi, and Kazumi Miura

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