Yen Weakens Before BOJ Meeting as Monetary-Stimulus Wagers Build

  • Further stimulus is a matter of when, not it, Mizuho says
  • Japanese currency has gained 14% this year versus dollar

The yen had its first two-week decline since May amid speculation that further monetary stimulus to boost Japan’s struggling economy is inevitable, whether or not it comes at next week central-bank meeting.

Mizuho Bank Ltd. and Commerzbank AG say Bank of Japan officials may well refrain from cutting their negative main interest rate or increasing asset purchases at that gathering. Yet speculation is building that currency-depreciating stimulus is on its way, with the government said to be discussing about 3 trillion-yen ($28.3 billion) of supplementary spending for the current fiscal year.

"As fiscal measures might not seem to be ready next week, I do see room to wait somewhat longer with further BOJ easing," said Esther Reichelt, a Frankfurt-based currency strategist at Commerzbank AG. "If they do not do anything, and not even hint at further easing in the near future, the yen will definitely appreciate."

The yen, commonly regarded as a haven because of the Asian nation’s current-account surplus, has undone the advance that followed the U.K.’s June 23 decision to leave the European Union. Its 13 percent gain against the dollar this year leaves Japan’s curency close to analysts year-end forecasts before the BOJ’s July 29 policy announcement.

The yen weakened 0.3 percent to 106.13 per dollar as of 5 p.m. New York time, leaving it down 1.2 percent on the week. It fell 0.7 percent this week to 116.51 yen.

Japan’s currency climbed Thursday after BOJ Governor Haruhiko Kuroda dismissed the idea of so-called helicopter money as a way of injecting cash into the economy. It pared its gains as it emerged that the Kuroda interview with BBC Radio was conducted before last month’s U.K. referendum. The yen touched 107.49 per dollar on Thursday, the weakest level since June 7.

“The yen should still be a sell in the run-up to the BOJ and supplementary budget announcements,” said Neil Jones, head of hedge-fund sales at Mizuho in London. “While there’s a risk of no change in policy on July 29, I still think it’s just a matter of time before there’s further stimulus for Japan.”

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