Yen Plunges the Most Since 2014 on Abe’s Fiscal Stimulus Plans

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  • Prime minister announces plans after party election gains
  • Haven demand loses luster on speculation central banks in play

Can Abe Successfully Implement His Fiscal Stimulus Plans?

The yen tumbled by the most since October 2014 as Japanese Prime Minister Shinzo Abe said he planned to add fiscal stimulus following the ruling party’s victory in Sunday’s upper-house elections.

Japan’s currency weakened against all of its 31 major peers after Abe, speaking in Tokyo on Monday, repeated his pledge for action on a stimulus package. He will order measures to support domestic demand, including plans to speed up the construction of high-speed trains. Demand for haven, which has supported the yen, was curbed as U.S. equities surged to an all-time high.

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The yen tumbled because "the Bank of Japan is likely to add to the macroeconomic stimulus package by easing monetary policy along with a more supportive fiscal environment," said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank. The election "opens up the scope for sweeping reforms. There’s also a large overhang in yen positions."

The Japanese currency has strengthened 17 percent this year versus the dollar, even with the Bank of Japan’s bond-buying and a negative-rate policy. That has confounded government officials who would prefer a weaker yen to boost exports and stoke inflation amid a slowing global economy.

The yen fell 2.3 percent to 102.80 dollar at 5 p.m. in New York, its steepest slide since October 2014. It dropped 2.3 percent to 113.68 per euro.

Abe Stimulus

In the U.S., the Standard & Poor’s 500 index rose to a record high and European equities gained for a third day after Andrea Leadsom withdrew her candidacy for Britain’s prime minister and cleared the way for Home Secretary Theresa May, who is set to succeed David Cameron.

"It’s suggesting less demand for the yen as a haven," said Eric Viloria, a currency strategist at Wells Fargo & Co. "To look at the movement today, it’s more of a stable market backdrop."

Abe will hold a cabinet meeting on economic measures to consider more than 10 trillion yen ($98 billion) in stimulus, and the government is considering issuing new debt for the first time in four years, according to a report from the Nikkei. Japan’s Topix index of stocks surged the most since February.

“Should the government go ahead with economic measures, the size of stimulus could be large,” said Yuji Saito, Tokyo-based head of the foreign-exchange department at Credit Agricole SA. “These expectations are spurring a surge in stocks and selling of the yen.”

Bullish bets on the yen last week approached the record reached in April, a report from the Commodity Futures Trading Commission showed. The currency climbed to as high as 99.02 per dollar for the first time since 2013 on June 24, after the Brexit vote. It’s often used as a haven because of Japan’s current-account surplus.