Yen Weakens Past 80 Per Dollar on Bets BOJ to Ease More

By Monami Yui and Mariko Ishikawa - Oct 23, 2012 11:17 AM GMT+0800

The yen weakened past 80 against the dollar for the first time in three months as signs the world’s third-largest economy is closer to contraction fanned speculation that the Bank of Japan (8301) will add further stimulus.
The greenback maintained an eight-day gain versus the yen, the longest winning streak in seven years, after yields on U.S. two-year notes rose to the most since June versus their Japanese peers, attracting money to dollar-based assets. The Australian dollar held onto three days of losses before data forecast to show inflation held near the slowest in 13 years, providing scope for the Reserve Bank to cut borrowing costs.

Japanese lawmakers are “applying pressure to the BOJ to further loosen monetary policy,” said Derek Mumford, a Sydney- based director at Rochford Capital, a currency risk-management company. “It can only result in more monetization of debt which will weaken the yen. A widening of U.S.-Japan yield gaps won’t help the yen.”
The yen touched 80.01 per dollar, the weakest since July 6, before trading at 79.84 as of 12:10 p.m. in Tokyo from yesterday’s close at 79.94. The Japanese currency recovered 0.2 percent to 104.21 per euro from 104.41, after reaching 104.59, the least since May 4. The euro lost 0.1 percent to $1.3052 after adding 0.3 percent yesterday.
Japanese Economy Minister Seiji Maehara, who has been calling for more action from the central bank, said today he may attend the BOJ’s next meeting on Oct. 30 if schedule permits. Maehara took part in the previous gathering ended Oct. 5, the first minister to do so for more than nine years.

Inflation Data

The BOJ will next week announce its policy decision and issue revised economic projections for the 2012 and 2013 fiscal years and its first set of forecasts for 2014.
Before the meeting, a government report on Oct. 26 will probably show that so-called core consumer prices in Japan declined in September for a fifth-straight month, according the economists surveyed by Bloomberg News. That compares with the central bank’s goal for inflation of 1 percent.
“The yen has been sold since last week amid expectations the BOJ will ease policy,” said Noriaki Murao, New York-based managing director of the marketing group at the Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “It would make sense for the BOJ to take action if they revise down their inflation outlook.”

Export Slump

Data yesterday showed Japanese exports slid 10.3 percent in September, the most since May 2011 in the aftermath of a record earthquake. Banks including JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. expect the country’s economy to contract in the third and fourth quarters of this year, according to Bloomberg News polls.
The yen has weakened 1.1 percent in the past week, the biggest decline among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro and dollar both rose 0.2 percent.
Treasury two-year notes yielded 20 basis points more than Japanese two-year government debt yesterday, the most since June 27, making the U.S. securities more attractive. A basis point is 0.01 percentage point.
The yen halted losses today as a technical indicator suggested recent losses were excessive. The 14-day relative- strength index for the Japanese currency versus the greenback was at 70.9, above the 70 level some traders see as a signal that a reversal is imminent. A similar gauge for the yen against the euro was at 68.7.

Core Inflation

In Australia, the so-called trimmed mean gauge of core consumer prices probably rose 2.2 percent in the three months ended Sept. 30 from a year earlier, according to economists surveyed by Bloomberg before the statistics bureau publishes its inflation report tomorrow. That compares with a 2 percent increase in the previous quarter, the slowest pace since June 1999. The Reserve Bank of Australia targets average annual inflation of 2 percent to 3 percent.

Interest-rate swaps data compiled by Bloomberg show traders are almost certain that policy makers will cut the overnight cash rate target by 25 basis points to 3 percent at their next meeting on Nov. 6.
Australia’s currency fetched $1.0315 from $1.0320, after falling 0.6 percent over the previous three days.
Demand for the euro was limited before a report today that may show an index of European consumer confidence remained at a more-than three-year low.

The European Commission in Brussels will probably say today its initial estimate for sentiment was minus 25.9 in October, according to the median estimate of economists in a Bloomberg News survey. That would match September’s reading that was the lowest since May 2009.

“With all the troubles in Europe, it seems to be hard to buy the euro,” said Rochford’s Mumford. “The euro is defying gravity. The promise from the European Central Bank to support sovereign debt has had effect, and has been buying some time. The overall picture is getting worse.”

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net