Yen touches lowest since 2010 amid bets on BOJ easing

by on January 14, 2013 5:22 am GMT

The yen fell to the lowest level in more than two years on prospects Japanese Prime Minister Shinzo Abe will select a central bank chief who will expand monetary easing efforts to accelerate the currency’s decline.

The Japanese currency weakened beyond 120 per euro for the first time since May 2011 after Abe said yesterday he wants someone “who can push through bold monetary policy” as the next governor of the Bank of Japan. The BOJ meets on policy Jan. 21-22. The dollar sank to a more than 10-month low against the euro as Federal Reserve Bank of Chicago President Charles Evans said the central bank should keep policy accommodative to support the economy. Demand for the greenback was also limited before data tomorrow that may show manufacturing in the New York region failed to expand.

“There is a huge expectation built in about what the Bank of Japan will need to deliver to validate the moves to date,” said Ray Attrill, the Sydney-based global co-head of currency strategy at National Australia Bank Ltd. “We expect a correction in the yen, but the most likely time is perhaps after the BOJ meeting.”

The yen dropped to as low as 89.67 per dollar, a level unseen since June 25, 2010, before trading at 89.60 as of 11:56 a.m. in Singapore, down 0.5 percent from last week’s close. It fell 0.9 percent to 120.07 per euro and touched 120.13, the weakest since May 2011. The dollar declined 0.4 percent to $1.3399 per euro and reached $1.3404, the least since Feb. 29.

Japan’s markets are shut today for a national holiday.

BOJ Policy

Bank of Japan (8301) Governor Masaaki Shirakawa speaks tomorrow at a meeting of branch managers. He’s due to step down in April after two of his deputies exit in March. The next governor must be a “bold policy leader” and will be chosen after consultations with Yale University Professor Emeritus Koichi Hamada and others, Abe said yesterday on public broadcaster NHK’s “Sunday Debate” program.

The BOJ will review its 1 percent inflation goal at its policy meeting next week. Abe, whose Liberal Democratic Party swept to power in elections last month, has demanded the central bank double the target.

The yen slid 11 percent in 2012, the most in seven years. It’s still 13 percent stronger than its 10-year average of about 101, hurting the overseas competitiveness of Japanese companies. Domestic manufacturers want the currency to trade between 90 and 100, Hiroshi Tomono, president of Nippon Steel & Sumitomo Metal Corp. said Jan. 7 in Tokyo.

The Fed Bank of New York may say tomorrow that its general economic index was at zero this month after a minus 8.1 reading in December, according to the median estimate of economists surveyed by Bloomberg News. Readings of less than zero signal contraction.

U.S. Austerity

U.S. retail sales probably slowed to 0.2 percent growth last month from 0.3 percent in November, a separate poll showed ahead of data from the Commerce Department tomorrow.

After President Barack Obama and U.S. lawmakers averted $600 billion in automatic spending cuts and tax increases that had been scheduled to start this month, Republicans are calling for a reduction in federal expenditures as a fight looms over raising the government’s borrowing limit.

“Too much austerity too soon could be very damaging to near- and medium-term growth,” the Chicago Fed’s Evans said at the Asian Financial Forum. While lawmakers should balance a government budget, “monetary policy has an important contribution to make,” he said in the text of prepared remarks in Hong Kong today.

Fed Chairman Ben S. Bernanke will speak in Ann Arbor, Michigan today about monetary policy.

Quantitative Easing

Several members of the Federal Open Market Committee advocated cutting the $85 billion monthly buying of Treasuries and mortgage debt in 2013, according to minutes of their December meeting released on Jan. 3. The purchases, the Fed’s third round of so-called quantitative easing since 2008, tend to debase the currency.

“Bernanke is going to disassociate ending quantitative easing with the start of policy normalization, suggesting that the interval between them could be years rather than months,” said Attrill at NAB. “That would be positive for risk and negative for the dollar.”

The Dollar Index fell as much as 0.3 percent to 79.345, the lowest since Jan. 2.

The euro may target $1.35, its strongest since December 2011, after last week breaking through so-called resistance at $1.33-$1.3310, according to JPMorgan Chase & Co.

The currency may first advance to its March high around $1.3386, Niall O’Connor, a New York-based technical analyst at JPMorgan, wrote in a note e-mailed to clients. It may then rise to the $1.3480-$1.35 zone, which includes the 50 percent Fibonacci retracement of the euro’s decline from May 2011 to July 2012, he wrote.