Yen Rallies From 7-Month Low as BOJ Refrains From Easing

By Emma Charlton and Kristine Aquino - Nov 20, 2012 5:00 PM GMT+0800

The yen rallied from near its weakest level in almost seven months after Bank of Japan (8301) Governor Masaaki Shirakawa said the main opposition party’s proposals to aggressively weaken the currency are unrealistic.

The Japanese currency rose versus all but one of its 16 major counterparts as the BOJ refrained from adding to measures that tend to debase the currency. Shinzo Abe, favored in polls to topple Japan’s prime minister in Dec. 16 elections, helped drive the yen lower in the past four days by calling for unlimited easing and restrictions on central bank independence. The euro weakened after Moody’s Investors Service cut France’s rating, renewing concern that Europe’s debt crisis will deepen.

“Shirakawa is being cautious, pouring some cold water on some of the ideas that have been put out by the opposition,” said Derek Halpenny, European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It’s a reason to pare short positions on the yen.” A short position is a bet that an asset will fall in price.
The yen climbed 0.2 percent to 81.24 per dollar at 8:54 a.m. London time. It touched 81.59 yesterday, the weakest level since April 25. Japan’s currency rose 0.4 percent to 103.89 per euro. Europe’s currency lost 0.2 percent to $1.2790.

Shirakawa told reporters in Tokyo he wants people to respect the BOJ’s independence and that unlimited money printing would cause great damage. He was speaking after the central bank said it would keep its asset fund at 66 trillion yen and a credit-lending facility unchanged at 25 trillion yen. All of 22 economists surveyed by Bloomberg News had forecast no change.

Goal Increase

Abe, leader of Japan’s Liberal Democratic Party, has advocated an increase in the central bank’s inflation goal to as much as 3 percent from 1 percent. The BOJ is scheduled to hold a policy meeting three days after the election, with 16 economists forecasting easing.
“The markets are pausing for breath in dollar-yen,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “They’re now thinking about the election, who’s likely to win it and what form the next government would take.”

The 14-day relative strength index for the dollar-yen rate rose to 71 yesterday, above the 70 level that some traders see as a sign an asset’s move may change direction.
“The move in the dollar-yen looks a bit overdone,” Mitul Kotecha, Hong Kong-based head of currency strategy at Credit Agricole SA (ACA), said in an interview on Bloomberg Television. “I don’t think we’re going to see a quick move up to 85.”

France Cut

The yen has declined 3.5 percent over the past three months, the biggest decline among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has gained 2.8 percent, while the dollar has dropped 1.1 percent.
Moody’s cut France by one grade to Aa1 from Aaa late yesterday and said its outlook remains negative.
“France’s fiscal outlook is uncertain as a result of its deteriorating economic prospects,” the ratings company said in a statement dated yesterday.

The downgrade follows similar action by Standard & Poor’s in January. Since S&P’s rating action, French government bonds have returned 9.4 percent, compared with 3.4 percent for German debt, and 2.5 percent for that of the U.S., according to Bank of America Merrill Lynch data.
“The euro is being sold on the back of France’s downgrade and it’s possible it could test a bit lower from here,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711) “The news was somewhat expected, so it’s unlikely the euro will tumble, but it would certainly keep it under downward pressure while the market looks for where the next downgrade would be.”

Euro Slide

Europe’s shared currency may slide as it trades near the so-called neck line of an M-shaped trading pattern known as a double-top formation, according to Brown Brothers Harriman & Co.
It may drop toward $1.2450 as it trades near $1.28, the neck line between a high of $1.3172 on Sept. 17 and a peak of $1.3140 on Oct. 17, Marc Chandler, New York-based global head of currency strategy at BBH, wrote in an e-mailed note to clients yesterday. The $1.2450 level was last seen on Aug. 22, when it dipped to as low as $1.2431.


To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net