Bloomberg News

Yen Tumbles in Longest Streak Since March After Abe Election

December 22, 2012

The yen fell for a sixth week against the dollar, the longest streak in nine months, after the nation’s central bank said it would review its inflation target after a pro-stimulus government was elected.

Japan’s currency reached to a 20-month low versus the greenback after Shinzo Abe’s Liberal Democratic Party won parliamentary elections, giving him a mandate to pursue expanded monetary easing. The Dollar Index erased a weekly decline after House Republican leaders canceled a scheduled vote on Speaker John Boehner’s plan to allow higher tax rates for annual incomes above $1 million, delaying a deal beyond the Christmas recess. Sweden’s krona and Norway’s krone rallied after central banks held policy meetings.

“We are eventually heading toward 100 in dollar-yen and maybe the other side of it -- that’s how significant this sea change in Japan is,” said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. “People will still believe that something has to give with the fiscal-cliff debate. I am still banking on strong U.S. growth next year.”

The yen declined 0.9 percent this week to 84.24 yen per dollar in New York, touching a 20-month low of 84.62 on Dec. 19. The Japanese currency fell 1.1 percent to 111.08 versus the euro, its second weekly decline. It reached 112.50 on Dec. 19, the least since August 2011. The euro rose 0.2 percent to $1.3188, reaching $1.3308, the strongest since May.

Futures Levels

Bets the yen will decline against dollar decreased from the most since 2007, according to Commodity Futures Trading Commission data. Future traders pared net-short yen positions to 89,163 contracts on Dec. 18 from 94,401 the previous week.

Wagers on the euro weakening against the dollar fell to 9,736, the least since September 2011.

The South African rand leads all major currencies this month against the greenback, appreciating 3.7 percent. The yen has weakned the most out of 16 counterparts versus the dollar, decreasing 2.1 percent.

South Korea’s won has appreciated more than all of its peers versus the dollar this quarter, adding 3.5 percent. The Norwegian krone has been the second-biggest gainer, increasing 2.7 percent.

Real Weakness

The Brazilian real has lost 10.2 percent versus the dollar in 2012, while the yen has declined 8.7 percent. The Mexican peso leads all 16 of the dollar’s biggest peers with a gain of 7.8 percent.

The Dollar Index, which tracks the greenback against the currencies of six major trading partners, fell after Boehner, an Ohio Republican, said in a statement yesterday his tax measure “did not have sufficient support from our members to pass.”

The gauge was little changed for the week at 79.538, after reaching the least since Oct. 18.

“If we discover that Boehner can’t control his base, markets are not going to like that and it’s risk-off,” Greg Anderson, the North American head of Group of 10 currency strategy at Citigroup Inc. in New York said Dec. 20.

The dollar will strengthen to $1.27 per euro by the end of June, according to a Bloomberg survey of analysts. The greenback will trade at 84 yen, a separate survey found.

Krona Rises

Sweden’s krona jumped against all its major counterparts after the central bank signaled it probably won’t cut interest rates next year, even as it lowered its benchmark Dec. 18.

The krona strengthened 1.7 percent to 8.6420 per euro, and climbed 1.9 percent to 6.5530 per dollar. The central bank reduced its benchmark rate by a quarter of a percentage point to 1 percent.

Norway’s krone was the second-best performer against the dollar this week, as Norges Bank announced it would keep interest rates a 1.5 percent. The central bank is trying to balance rising housing prices without strengthening the krone.

The krone gained 0.8 percent to 5.5747 per dollar after appreciating to the strongest since October 2011. It fetched 7.3507 per euro, 0.7 percent stronger.

Abe asked BOJ Governor Masaaki Shirakawa to agree to 2 percent inflation target when the two met on Dec. 18. At its meeting this week, the Bank of Japan boosted monetary stimulus and agreed to review its 1 percent goal.

Japan Outlook

“Fears that the new Abe government is going to announce something quite drastic are diverting flows into other currencies,” said Peter Frank, global head of currency strategy at Banco Bilbao Vizcaya Argentaria SA in London.

Declines in the yen may temper as the 14-day relative strength index against the dollar touched 25.3, below the 30 level for the eighth day. A reading of 30 or lower indicates an asset may have fallen too far too quickly. The yen’s relative strength versus the euro reached 26.9.

The euro was supported this week as Standard & Poor’s lifted Greece’s long-term rating to B-, citing the completion of the nation’s distressed-debt buyback and the determination of euro-zone member states to preserve Greece’s membership in the currency bloc.

The euro has fallen 1 percent this year against nine- developed nation currencies, according to the Bloomberg Correlation-Weighted Indexes. The dollar has retreated 2.9 percent and Norway’s krone is the best performer with a 4.9 percent advance.

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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