Bloomberg News

Yen Pares Losses as BOJ Keeps Rates, Asset-Purchase Program Unchanged

March 13, 2012

The yen erased earlier losses against the dollar after the Bank of Japan (8301) kept its key interest rate and asset-purchase program unchanged.

The central bank added a 1 trillion yen ($12 billion) program for loans denominated in U.S. dollars and is expanding its venture capital-style domestic fund by 500 billion yen. The euro remained higher versus the U.S. currency after euro-area finance ministers approved a second Greek bailout, clearing the way for the first payment from the 130 billion-euro package ($171 billion) to be made this month.

“The BOJ’s decision may look disappointing to some market participants,” said Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co. in Tokyo. “That’s leading to some buying back of the yen as the market was leaning toward shorting the Japanese currency.” A short is a bet that an asset will decline in value.

The yen gained 0.1 percent to 82.18 per dollar at 6:40 a.m. in London from the close in New York yesterday, after earlier dropping as much as 0.3 percent. Japan’s currency was little changed at 108.14 per euro after it declined as much as 0.4 percent. The euro traded at $1.3166 from $1.3155, following a 0.2 percent advance yesterday.

BOJ Governor Masaaki Shirakawa and his board members kept the benchmark interest rate between zero and 0.1 percent, the central bank said in a statement today. Policy makers left the asset purchase fund at 30 trillion yen and a credit-loan program at 35 trillion yen. They unexpectedly boosted bond buying by 10 trillion yen at the Feb. 14 meeting, driving the yen lower.

Worst Performer

Japan’s currency slid 5.5 percent in the past month, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 0.8 percent, and the euro added 0.6 percent.

The 17-nation euro strengthened against 11 of its 16 major counterparts after the currency bloc’s finance ministers approved Greece’s second bailout.

Greece is now in line to receive more than 100 billion euros in the next three years from the European Financial Stability Facility, the euro region’s temporary rescue fund, starting with payments of 5.9 billion euros in March, 3.3 billion euros in April and 5.3 billion euros in May, EFSF Chief Executive Officer Klaus Regling said.

“The worst is over for the euro with Greece avoiding a disorderly default,” said Noriaki Murao, managing director in New York at the Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “I expect to see traders unwinding their short positions.”

Fed Meeting

Losses in the dollar were limited as evidence of a U.S. economic recovery tempered speculation that the Federal Reserve will signal additional easing at a meeting today.

Retail sales in the U.S. increased 1.1 percent in February, the most in five months, according to the median estimate of economists in a Bloomberg survey before Commerce Department figures due today. That would follow data on March 9 that showed nonfarm payrolls increased by 227,000 in February after rising by a revised 284,000 the prior month. The unemployment rate held at a three-year low of 8.3 percent.

“Recent U.S. data may be strong enough to persuade policy makers to be less cautious about the pace of the recovery,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides currency margin-trading services. “The market is reducing bets for another round of quantitative easing.”

Dollar Index

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, reached 80.132 yesterday, the most since Jan. 25 and was 0.1 percent lower at 79.802 today.

The index fell 0.4 percent on Jan. 25, when the Fed said subdued inflation and slack in the economy are likely to warrant keeping rates “exceptionally low” at least through late 2014.

The Australian and New Zealand dollars rose for the first time in three days as Asian shares reversed losses from yesterday, boosting demand for riskier assets.

The MSCI Asia Pacific Index (MXAP) of shares climbed 0.9 percent, rebounding from a 0.6 percent fall yesterday. Standard & Poor’s 500 Index futures rose 0.4 percent from yesterday, when the stocks gauge fell as much as 0.3 percent.

Australia’s dollar gained 0.3 percent to $1.0548 and New Zealand’s currency advanced 0.5 percent to 82.24 U.S. cents.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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