Bloomberg News

Yen Declines to Six-Month Low on BOJ Stimulus Prospect

November 18, 2012

(Corrects direction of yen bets in fifth paragraph of story initially published Nov. 17.)

The yen slumped to the lowest in more than six months against the dollar on speculation that Japanese elections next month will hand power to an opposition party that advocates more aggressive monetary stimulus.

The Japanese currency weakened versus all of its 16 most- traded counterparts as Prime Minister Yoshihiko Noda said he will dissolve parliament, paving the way for elections that polls shows his Democratic Party of Japan will lose. The euro gained against its U.S. peer for the first time in four weeks after touching a two-month low. The pound fell to a 10-week low versus the greenback as data showed U.K. retail sales slid. The Bank of Japan (8301) is forecast to keep its main interest rate at zero to 0.1 percent when it meets next week.

“Economic data globally has been weak,” Greg Anderson, the North American head of Group of 10 currency strategy at Citigroup Inc. in New York, said in a telephone interview. “Rising concerns that we are in a second-dip recession, maybe not in the U.S., but in Japan and the euro zone, has weighed on market sentiment all week long.”

The yen depreciated 2.3 percent to 81.32 per dollar in New York this week, its biggest drop since February. The Japanese currency decreased 2.5 percent to 103.60 per euro, its most pronounced fall since September. The euro added 0.2 percent to $1.2743.

Net Shorts

Futures traders decreased their bets the yen will fall against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 30,447 on Nov. 13, compared with net shorts of 40,104 a week earlier.

Wagers the euro will fall against the dollar were 83,646 on Nov. 13, up from 67,141 a week earlier. Net shorts reached a record 214,418 on June 8.

The Mexican peso was the biggest winner among its 16 most- traded peers this week, climbing 0.5 percent to 13.1372 against the dollar. The Brazilian real was the worst performer after the yen, declining 1.9 percent to 2.0851 per dollar.

Japan’s currency has fallen 6.9 percent this year, the most out of its major peers, according to the Bloomberg Correlation- Weighted Indexes, which track 10 developed-nation currencies. The euro has been the second-worst performer, losing 2.8 percent. The dollar has declined 0.9 percent, while the New Zealand dollar has been the best performer, rising 4.1 percent.

Further Easing

The dollar gained against the majority of its most-traded peers this week as a haven play on speculation President Barack Obama and congressional lawmakers will be unable to avoid the so-called fiscal cliff, more than $600 billion of federal spending cuts and tax increases that will take effect at the start of next year unless Congress acts. Failure to reach an agreement risks pushing the U.S. back into a recession.

A number of Federal Reserve officials said the central bank may need to expand its monthly purchases of bonds after the December expiration of what’s become known as Operation Twist, according to minutes of their October meeting. The Fed is swapping short-term Treasuries on its balance sheet for longer- term debt.

“We’ve tempered the potential for dollar gains,” Brian Kim, a currency strategist at Royal Bank of Scotland Plc’s RBS Securities unit in Stamford, Connecticut, said in a Nov. 14 telephone interview. “We are baking in that there will be easing over the course of next year, even with the U.S. growth story.”

The Dollar Index, which measures the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, ended the week up 0.2 percent to 81.192, after touching the highest level since Sept. 5.

European Data

Britain’s pound fell on Nov. 15 to its lowest level since Sept. 5 after data showed retail sales including fuel dropped 0.8 percent in October from September, when they gained a revised 0.5 percent. The median forecast in a Bloomberg News survey was for a 0.1 percent decline.

The data wasn’t “terribly positive as far as the fourth- quarter gross domestic product goes,” David Tinsley, an economist at BNP Paribas SA in London, said in a Nov. 15 interview. “There is a reasonable chance that the fourth- quarter release will show the economy slipping backwards. That will raise the political heat for the government amidst talk of the economy triple dipping.”

Sterling fell 0.1 percent to $1.5888 after touching $1.5829. It declined 0.3 percent to 80.17 pence per euro.

Recession Redux

In the euro area, data showed the economy slipped into a recession for the second time in four years.

Gross domestic product in the region slipped 0.1 percent in the third quarter after a 0.2 percent decline in the previous three months, the European Union’s statistics office in Luxembourg said today. From the year-earlier period, GDP dropped 0.6 percent.

The Australian dollar fell versus most of its peers after the nation’s Reserve Bank said it increased sales of the currency last month to a category of buyers that includes foreign banks.

The RBA sold A$483 million ($500 million) more in local currency than it bought in October through the so-called other outright transactions category, the most since June 2009, according to data released today.

“There will likely be more chatter that the RBA is perhaps conducting off-market, central bank-to-central bank transactions,” Emma Lawson, a Sydney-based foreign-exchange strategist at National Australia Bank Ltd., said in a Nov. 15 interview.

The Aussie slipped 0.4 percent to $1.0343. It gained 1.8 percent to 84.07 yen.

New Zealand’s dollar, nicknamed the kiwi, decreased 0.3 percent to 81.20 U.S. cents after falling to 80.53, its lowest level since Sept. 7. The kiwi rose 2 percent to 66.01 yen.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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