Yen Drops Versus Major Peers Before Central Bank Meetings

By Monami Yui and Masaki Kondo - Oct 4, 2012 12:11 PM GMT+0800

The yen weakened against its 16 major peers on speculation central banks around the world will take more steps to avert a further slowdown in the economies, curbing demand for refuge assets.
The Japanese currency fell to its lowest level in two weeks against the dollar as the Bank of Japan (8301) begins its two-day policy meeting today after expanding stimulus last month. Demand for the euro was supported before European Central Bank policy makers convene to discuss ways to contain the deepening fiscal turmoil in the region. Australia’s dollar earlier slid to a four-week low after data showed the nation’s retail sales rose by less than economists had expected.

“I expect the BOJ to bolster aggressive monetary easing,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities, a unit of Japan’s third-largest bank by market value. “Such a move would keep the yen in check.”'

The Japanese currency slid 0.2 percent to 78.67 per dollar as of 12:43 p.m. in Tokyo after touching 78.72, the weakest since Sept. 19. It dropped 0.4 percent to 101.68 per euro, set for a sixth-straight decline. The 17-nation euro fetched $1.2926 from $1.2905. The currency reached $1.2804 on Oct. 1, the lowest since Sept. 11.
The MSCI Asia Pac
ific Index of shares rallied 0.6 percent.
The BOJ increased its asset-purchase program by 10 trillion yen ($127 billion) to 55 trillion yen at the previous meeting on Sept. 19, saying the economy’s pick-up was slowing while prices were flat.

Japan’s Economy

Data over the past week have added to the case that the BOJ will need to expand stimulus to boost growth and achieve its 1 percent inflation goal. Consumer prices in August matched the steepest decline in 16 months and the nation’s biggest manufacturers grew more pessimistic last quarter.
The yen dropped 1.6 percent in the past month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 1.3 percent and the euro strengthened 1.9 percent.

The ECB is projected to keep its benchmark interest rate unchanged at a record-low 0.75 percent today, a Bloomberg News survey shows. ECB President Mario Draghi unveiled a program of unlimited bond purchases last month to ease borrowing costs for debt-ridden nations, spurring a rally in the shared currency.
Gains in the euro were limited before Spain sells notes maturing in 2014, 2015 and 2017 today as investors weigh whether the indebted nation will ask for an international bailout. Prime Minister Mariano Rajoy this week denied that he has immediate plans to seek assistance.

Bailout Prospects

“The markets are disappointed that Spain may not seek aid soon,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “That’s leading to a little bit of euro selling.”
In the U.K., the Bank of England will probably leave its asset-purchase target at 375 billion pounds ($604 billion) at its monthly policy meeting today, according to all 40 economist forecasts compiled by Bloomberg. It will also leave its main interest rate at a record-low 0.5 percent, according to all 50 estimates in a separate survey.

The pound was little changed at 80.29 pence per euro. It fetched $1.6100 from $1.6076 yesterday.
Demand for the dollar was limited before the Federal Reserve today publishes minutes of its Sept. 13 meeting, when it announced a third round of so-called quantitative easing that tends to debase the currency. The central bank will continue record stimulus even after economic expansion gains strength, Chairman Ben S. Bernanke said this week.

Jobless Rate

A Labor Department report tomorrow will show the nation’s unemployment rate probably rose to 8.2 percent in September from 8.1 percent the prior month, economists in a Bloomberg survey forecast. The jobless rate has been stuck above 8 percent since February 2009.
U.S. nonfarm payrolls increased by 115,000 jobs last month, compared with a monthly average of 139,000 in the first eight months of the year, another poll showed. Data from ADP Employer Services showed private payrolls increased by 162,000 last month, more than economists estimated.
The Fed minutes “may provide a bit of insight as to whether the Fed discussed the continuation of asset purchases at year-end,” Mary Nicola, a New York-based currency strategist at BNP Paribas SA, wrote in a note to clients yesterday. “This could drive the dollar lower as the market starts to see that outright Treasury purchases are in the pipeline.”

Retail sales in Australia advanced 0.2 percent in August from the previous month, when they dropped 0.8 percent, the statistics bureau said today in Sydney. Economists had forecast a 0.4 percent increase.
Australia’s currency touched $1.0182, the lowest since Sept. 6, before trading at $1.0211, 0.1 percent lower than the close yesterday.
-- With assistance from Mika Otsuka in New York. Editors: Jonathan Annells, Naoto Hosoda

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net