Yen in Crosshairs as Pimco’s Clarida Sees Risk of a BOJ Letdown

Updated on
  • Volatility measure reaches highest since financial crisis
  • Japan’s currency down about 2% this month on stimulus bets

Pimco's Clarida: 30% Chance BOJ Doesn't Do Anything

The yen gained ahead of Friday’s Bank of Japan policy meeting as traders weighed the potential for further monetary stimulus from Governor Haruhiko Kuroda.

Japan’s currency swung between gains and losses earlier after Reuters reported that the BOJ is considering specific steps to boost the economy under pressure from the government, which revealed its own fiscal measures this week. Thirty-two of 41 analysts surveyed by Bloomberg July 15-22 predicted the BOJ would announce a fresh round of easing. Yet rising expectations of monetary stimulus may leave traders disappointed, according to Pacific Investment Management Co.’s Richard Clarida.

“I think 30 percent chance that they don’t do anything, and at least a 50 percent chance that they disappoint, whatever they do,” Clarida, a global strategic adviser at Pimco, said in a Bloomberg Television interview Thursday.

The yen strengthened 0.1 percent to 105.27 per dollar as of 5 p.m. in New York. It’s still down about 2 percent this month on the back of increased economic-stimulus bets. The currency appreciated below 100 per dollar last month, the strongest since 2013, amid market volatility in the wake of the U.K. vote to leave the European Union. The strength adds to headwinds in the world’s third-biggest economy. The euro strengthened 0.2 percent to $1.1077 on Thursday.

“It is notable that dollar-yen volatility is extremely elevated overnight,” as traders establish positions before the decision, said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto.

Combined Effort

Traders are still waiting to find out more details about Prime Minister Shinzo Abe’s proposal for 28 trillion yen of ($267 billion) economy-boosting spending announced earlier this week.

Amid conflicting reports on the prospects of stimulus measures, a gauge of volatility in the dollar-yen overnight exchange rate climbed to the highest since the global financial crisis in 2008, before retreating.

“We’ve seen disappointment out of Japan in the past,” Kate Warne, a St. Louis-based investment strategist at Edward D. Jones & Co., said in an interview in New York. “The market could easily have gotten ahead of itself.”

— With assistance by Rebecca Spalding

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