The yen climbed versus all of its 16 most-traded peers amid speculation a decision tomorrow by the Bank of Japan (8301) will signal its monetary-easing efforts will fall short of its goals and fail to reignite inflation.
The dollar weakened against the euro as reports on U.S. service industries and employment trailed forecasts. The pound gained from a two-week low on bets the Bank of England won’t extend monetary-stimulus tomorrow. Japanese Prime Minister Shinzo Abe said yesterday the BOJ may fail to achieve its target of boosting inflation to 2 percent.
“Japan tends to move a little bit more slowly than markets, and that’s the risk we face tomorrow,” Daragh Maher, a London-based currency strategist at HSBC Holdings Plc, said in an interview on Bloomberg Television’s “Lunch Money” with Julie Hyman. “Therefore I think you’re long yen, you’re selling dollar-yen because of that scope for disappointment, for being underwhelmed.” Long positions are bets a currency will gain.
The yen climbed 0.4 percent to 93.04 per dollar at 5 p.m. in New York after losing 0.2 percent yesterday. The U.S. currency weakened 0.2 percent to $1.2850 per euro. Europe’s shared currency fell 0.2 percent to 119.54 yen and touched 119.11, the lowest level since Feb. 26.
The JPMorgan G7 Volatility Index, based on three-month futures options on Group of Seven nations’ currencies, fell to 8.92 percent, a two-month low. It reached a 2013 high of 10.26 percent on Feb. 26.
The ruble was the biggest loser against 31 major counterparts tracked by Bloomberg as concern Europe’s debt crisis will worsen spurred the strongest capital outflow from Russia in a year. The currency slid 0.9 percent to 31.5949 per dollar and touched 31.6219, the weakest level since Nov. 19.
The pound strengthened against the dollar amid speculation the Bank of England at a meeting tomorrow will maintain its asset-purchase target at 375 billion pounds ($568 billion), according to a Bloomberg survey of economists.
Sterling rose 0.2 percent to $1.5130 after dropping earlier to $1.5076, the weakest level since March 20.
The rand rallied after a gauge of South African business confidence rose. South Africa’s currency appreciated 0.3 percent to 9.2275 to the dollar.
The Bank of Japan will say tomorrow after a two-day meeting it will boost monthly bond purchases by about 50 percent to 5.2 trillion yen ($56 billion), according to the average forecast in a survey of economists by Bloomberg.
“The market is very nervous given positioning and uncertainty ahead of the meeting,” said Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York. “The moves could be extremely wild both ways before we settle on a new trend that makes stop-loss management a nightmare.” A stop-loss order is an automatic instruction to buy or sell a currency at a certain level to limit losses.
The yen has tumbled 16 percent against the dollar and slid 15 percent versus the euro during the past six months.
Japanese two-year government bonds yielded 0.06 percent today, or six basis points, compared with 0.23 percent for similar-maturity Treasuries. Japan’s five-year securities yield 0.137 percent, compared with 0.11 percent on March 18, while U.S. five-year notes yielded 0.72 percent.
If Japan’s central bank drives two-year yields lower than five basis points and five-year yields lower than 13 basis points, “we are likely to see significant weakness” in the yen versus the dollar, Steven Englander, a currency strategist at Citigroup Inc. in New York, wrote in a report.
The BOJ’s new governor, Haruhiko Kuroda, has indicated that expanded purchases of government bonds will be the main tool for easing. He has said the bank will consider combining monthly purchases and an asset-purchase fund, as well as buying more debt with longer maturities.
Kuroda, who has given himself two years to do “whatever it takes” to end deflation, is running his first policy meeting.
“While the Japanese are serious about combating deflation, they would need to perform extraordinary measures, like buying foreign bonds, to justify the market’s perception of what they may do,” said George Davis, chief technical analyst for fixed income and currencies at Royal Bank of Canada’s RBC Capital Markets unit in Toronto. “They are more likely to be more cautious, preferring to save their bullets instead of using them all at once.”
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, declined 0.2 percent to 82.763.
The U.S. currency extended losses against the euro and yen after the Institute for Supply Management’s index of U.S. non- manufacturing businesses, which covers almost 90 percent of the economy, fell to 54.4 in March from 56 in the prior month. The median forecast of 73 economists surveyed by Bloomberg was 55.5. Readings above 50 signal expansion.
American companies added 158,000 jobs last month, the least since October, Roseland, New Jersey-based ADP Research Institute reported. A Bloomberg survey forecast an increase of 200,000.
The euro weakened 1.5 percent over the past month among the 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The dollar was little changed and the yen gained 0.6 percent.
The European Central Bank’s Governing Council meets tomorrow to decide on interest rates. Of 56 economists surveyed by Bloomberg News, 54 expect the ECB to keep its key rate at a record-low 0.75 percent, while two predict a cut.
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