Bloomberg News

Yen Trades Close to 20-Month Low After BOJ; Euro Strengthens

December 20, 2012

The yen traded at an almost 20-month low against the dollar after the Bank of Japan boosted monetary stimulus and agreed to review its 1 percent inflation target.

Japan’s currency has fallen against all its major counterparts this month as newly elected Prime Minister Shinzo Abe called for BOJ Governor Masaaki Shirakawa to double the inflation goal. The 17-nation euro was close to an eight-month high against the dollar as regional consumer confidence rose from a three and a half year low. Sweden’s krona was the biggest winner against the dollar and euro.

“Shirakawa was more dovish than expected, as we did have a balance-sheet increase and the fact that he was willing to think about moving the goal post was encouraging,” said Greg Anderson, the North American head of G-10 currency strategy at Citigroup Inc. in New York. “The whole world is short yen at this stage and they are turning positions. That was the response you got last night, but the more dovish response from the BOJ means you should be adding to short-yen.” A short position is a bet that an asset will decline in value.

The yen was little changed at 84.39 per dollar at 5:02 p.m. New York, after falling yesterday to the least since April 12, 2011. Japan’s currency fell 0.1 percent to 111.76 per euro. The common currency advanced 0.1 percent to $1.3244. It appreciated to $1.3308 yesterday, the strongest since April 3.

Extreme Moves

The yen may gain versus the dollar and euro as the 14-day relative strength index for the Japanese currency was at 22.8 versus the greenback and 19.1 against the shared currency. A reading below 30 indicates an asset’s value may have declined too far, too quickly.

Sweden’s krona gained 0.7 percent to 6.5057 per dollar and advanced 0.6 percent to 8.6165 versus the euro.

The euro has gained this week as an index of household confidence climbed to minus 26.6 this month from minus 26.9 in November, according to the European Commission in Brussels. A German report yesterday showed business confidence was higher than economists forecast in December and Standard & Poor’s raised Greece’s credit rating from selective default on Dec. 18.

The Dollar Index (DXY) fell for a fifth day, declining 0.1 percent to 79.236 after falling to 79.008 yesterday, the lowest level since Oct. 18. Losses in the gauge, which tracks the greenback against the currencies of six major trading partners, accelerated after a Commerce Department report showed the U.S. economy grew at 3.1 percent annual rate in the third quarter, more than previously forecast.

Deficit Deal

Lawmakers are struggling to reach agreement to avert more than $600 billion in tax increases and spending cuts set to start in January.

The House of Representatives will vote today on Speaker John Boehner’s Plan B -- tax increases on annual income of more than $1 million -- and a separate spending-cut bill. The White House has said it would veto the plan and leaders of the Democratic-controlled Senate say they won’t consider it, leaving an uncertain path forward for lawmakers.

The BOJ kept its credit-lending program at 25 trillion yen and left its key interest rate unchanged between zero and 0.1 percent at its two-day meeting in Tokyo. Abe, whose party swept to victory in the Dec. 16 election, will have a chance to reshape the BOJ early next year when the terms of Governor Shirakawa and his two deputies expire.

“There’s a sell on the fact,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, referring to the BOJ decision. “The market got a little bit over-excited about the inflation target. The move we saw in the yen was over-extended and we’re now seeing some pullback.”

The yen is likely to trade at 83 per dollar at the end of June, Rabobank’s Foley said.

Japan’s currency has tumbled 12.9 percent this year, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has weakened 3.5 percent and the euro has dropped 1.1 percent.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

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


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