Bloomberg News

Yen Weakens to 11-Month Low on BOJ Easing; Dollar Gains on Economic Data

March 13, 2012

The yen dropped to the weakest level against the dollar in almost 11 months after Bank of Japan Governor Masaaki Shirakawa indicated the central bank will keep using monetary policy as a tool to tackle deflation.

The dollar strengthened and Treasury yields rose as retail sales gained the most in five months, further tempering speculation the Federal Reserve will signal additional stimulus after a meeting today. The pound rallied as U.K. housing prices climbed to a 19-month high. The euro fell against most of its 16 major counterparts as a European Central Bank council member said policy makers are discussing ways to withdraw some of the emergency cash they injected into the banking system.

“There has been a move up in U.S. Treasury yields and that’s helping drive dollar-yen, and the dollar against the majors in general,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “The U.S. economy is starting to distance itself.”

The yen fell 0.5 percent to 82.67 per dollar at 12:42 p.m. New York time, after declining to 82.86, the weakest since April 20. Japan’s currency was 0.2 percent lower at 108.37 per euro. The shared European currency declined 0.4 percent to $1.3108.

Yields on benchmark Treasury 10-year notes rose four basis points, or 0.04 percentage point, to 2.07 percent. Two-year note yields were up less than one basis point to 0.33 percent, the highest level since Aug. 4.

European Policy

The 17-nation euro touched its weakest level in a month versus the dollar before paring losses as Greece announced it paid the interest due on one of its international bonds yesterday.

“All council members are aware that non-standard measures create risks and have to be unwound,” Jens Weidmann, who heads Germany’s Bundesbank, said at a press conference in Frankfurt today. “We need this discussion and it is taking place. The time frame depends on several things, including how the environment develops.”

Weidmann wrote a letter to ECB President Mario Draghi about the risks the central bank is taking, fueling speculation of a rift.

Sterling gained 0.9 percent to 83.33 pence per euro after the Royal Institution of Chartered Surveyors home-price gauge increased 3 points from January to minus 13, the strongest reading since July 2010. The pound rose 0.6 percent to $1.5732. It fell to as little as $1.5603 yesterday, the weakest level since Jan. 25.

U.S. Data

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners rose 0.1 percent to 79.990 as retail sales in the U.S. rose 1.1 percent in February, according Commerce Department figures.

“The dollar has been responding positively to U.S. data surprises and that suggests that the market isn’t translating positive data surprises from the U.S. into a broader support for risk appetite but is in fact looking at it as a dollar positive event,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “That’s a very significant change which has been taking place.”

Canada’s dollar rose 0.3 percent to 98.99 cents per U.S. dollar. Mexico’s peso advanced 0.2 percent to 12.6363 versus the dollar as accelerating growth in the U.S. will boost exports.

New Zealand’s dollar was the best performer against the dollar, advancing 0.5 percent to 82.18 U.S. cents.

Japan Banks

BOJ Governor 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 its asset-purchase fund at 30 trillion yen ($360 billion) after unexpectedly boosting bond buying by 10 trillion yen at the Feb. 14 meeting. The measures contributed to weakening the yen and helped boost stocks, Shirakawa told reporters in Tokyo.

“Monetary-policy expectations are now driving currencies again, so dollar-yen has performed so well because the combination of the possibility of less-dovish comments from the Fed and more-dovish comments from the Bank of Japan (8301),” said Kathy Lien, director of currency research with online currency trader GFT Forex in New York.

The dollar may strengthen to 85 yen by the middle of this year as the greenback’s 100-day moving average rose above its 200-day moving average, forming a so-called golden cross, said Koji Fukaya, Credit Suisse’s chief currency strategist in Tokyo.

Implied volatility of three-month options on the dollar-yen currency pair declined to 10.86 percent, according to data compiled by Bloomberg. It advanced to 11.21 percent yesterday, the most since Sept. 29. The implied volatility of three-month euro-dollar options declined to 10.67 percent from 11.34 percent a week ago.

Japan’s currency slid 6 percent in the past month, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 0.9 percent, and the euro advanced 0.2 percent.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net;

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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