Yen Falls in Biggest 2-Day Drop Since 2014 on Stimulus Signals

  • Abe to order ministers to prepare plans for more easing
  • Japanese currency falls more than 1% against 31 major peers

Japanese Yen Sees Biggest 2-Day Decline Since Nov. 2014

The yen slid in its biggest two-day drop against the dollar since November 2014 as investors awaited details of the stimulus package promised by Japan’s Prime Minister Shinzo Abe.

The currency fell by more than 1 percent against all of its 31 major peers after Abe said he planned to add fiscal stimulus after his victory in last weekend’s upper house election. The premier indicated Tuesday he will order ministers to prepare plans for further measures aimed at supporting domestic demand. Global stocks erased losses sparked by the U.K.’s vote to leave the European Union.

“The yen is on the back foot as Japanese investors go hunting for yield,” Kit Juckes, global strategist at Societe Generale SA, said in an interview on Bloomberg Television. “This could go a bit further, just because of the weight of positions and because the mood is bright.”

As demand for haven assets dissipated this week, the yen has declined, providing welcome news to government officials who would prefer a weaker currency to boost exports and stoke inflation amid a slowing global economy. The yen has gained 15 percent this year versus the dollar, even with the Bank of Japan’s bond-buying and a negative-rate policy.

The yen fell 1.8 percent to 104.69 per dollar as of 5 p.m. New York time, after sliding 2.2 percent Monday. It depreciated 1.9 percent to 115.80 against the euro and fell 3.6 percent against the pound, which rebounded from 31-year lows after the Brexit vote.

The prospect of Japan unveiling bold economic measures boosted the Nikkei 225 Stock Average 2.5 percent on top of Monday’s 4 percent jump. The Standard and Poor’s 500 Index of stocks rallied to a record for a second day.

Investor Preference

“Risk appetite is in the ascendancy, and as a consequence we are seeing higher-yielding currencies rally and haven currencies including the yen decline,” said Jeremy Stretch, the London-based head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “It’s a case of hopes for additional Japanese fiscal stimulus post the upper house elections.”

The yen’s decline caught hedge funds and other large speculators off guard. Bullish bets on the currency last week approached the record high reached in April, data from the Commodity Futures Trading Commission showed.

Abe hasn’t yet requested the compilation of an economic package, Economy Minister Nobuteru Ishihara told reporters in Tokyo Tuesday. The Nikkei newspaper reported Monday the amount of stimulus could be more than 10 trillion yen ($95 billion) and the government is considering issuing new debt for the first time in four years.

BOJ Governor Haruhiko Kuroda has repeatedly said the central bank won’t hesitate to expand stimulus. More than half of economists surveyed before the June meeting were predicting a move on July 29.

“Short yen is our highest-conviction trade,” said Samir Sheldenkar, an investment partner at Harmonic Capital Partners, in an interview in New York. He was referring to bets the currency will fall. “Policy makers do not want a strong yen -- they’re going to do everything they can to make the yen weaker.”

Before it's here, it's on the Bloomberg Terminal.