Yen Trades Near More-Than Two-Year Low Amid Stimulus Bets

by on January 7, 2013 5:16 am GMT

The yen traded near a 2 1/2 year low as speculation grew that Japan’s Prime Minister Shinzo Abe will ramp up efforts to spur growth, paring demand for refuge assets.

The Dollar Index gained for a fourth day before Richmond Federal Reserve President Jeffrey Lacker speaks tomorrow in Columbia, South Carolina. Minutes released last week of the U.S. central bank’s latest meeting showed policy makers may curtail monetary stimulus this year. Demand for the yen was supported after a technical gauge showed it was the most oversold against the greenback in a decade.

“Yen weakness against the dollar may take a little breather,” said Takuya Kawabata, a researcher in Tokyo at Gaitame.com. “The yen has been looking oversold above 85 per dollar.”

Japan’s currency was little changed at 88.08 per dollar as of 1:40 p.m. in Tokyo from Jan. 4, when it touched 88.41, the weakest since July 2010. The yen gained 0.3 percent to 114.88 per euro, after posting a 1.4 percent decline last week. The dollar added 0.2 percent to $1.3040 per euro.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, advanced 0.2 percent to 80.629 from the end of last week, when it touched 80.868, the highest since Nov. 22. The gauge rose 1 percent in the past three sessions.

The Japanese government will announce around 12 trillion yen ($136 billion) in fiscal stimulus this month to boost the nation’s shrinking economy, the Yomiuri newspaper said today. The extra budget for this fiscal year through March will include 5-6 trillion yen of public works spending, the report said, without saying where it obtained its information.

‘Bold’ Policy

Abe said on Jan. 1 that the most urgent issue for the nation was to break out of currency appreciation and deflation. “Bold” monetary policy is one of the three prongs of his economic measures, he said. Bank of Japan (8301) policy makers will hold their first 2013 meeting Jan. 21-22.

The yen’s 14-day RSI against the dollar was at 16, below the 30 level which indicates to some investors an asset’s price has fallen too rapidly and may be poised to reverse course. It slid to 15.5 on Jan. 4, the least since December 2001. The yen’s level versus the euro was at 29 today.

Futures traders decreased their bets that the yen will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain — so-called net shorts — was 80,517 on Dec. 31, compared with net shorts of 85,608 a week earlier.

Dollar ‘Expensive’

“We certainly wouldn’t be buying dollar-yen at these types of levels,” Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. (WBC) in Singapore, said in a Bloomberg Television interview. “It’s looking too rich and too expensive.”

The dollar gained last week after minutes from the Fed meeting on Dec. 11-12 showed that board members said they’ll probably end $85 billion in monthly bond purchases, the third round of so-called quantitative easing, some time in 2013.

Lacker said on Jan. 4 further monetary stimulus is unlikely to boost growth and will “test the limits” of the U.S. central bank’s credibility.

“At some point, we will need to withdraw stimulus by raising interest rates and reducing the size of our balance sheet,” he said in prepared remarks to the Maryland Bankers Association in Baltimore.

Fed Outlook

“Dollar-yen is supported as some Fed members indicated the QE program should end this year,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “Comments by key Fed members remain a focus.”

The greenback has gained 0.6 percent in the past week, according to Bloomberg Correlation-Weighted Indexes which tracks 10 developed-nation currencies. The yen’s 1.1 percent drop over the same period was the worst performance, while the euro lost 0.6 percent.

Demand for the euro was limited before data which may show unemployment in the 17-nation currency block increased. Jobless rate probably rose to 11.8 percent in November from 11.7 percent in the previous month, according to the median estimate of economists surveyed by Bloomberg News before the data tomorrow.

European Central Bank President Mario Draghi’s Governing Council, which cut economic and inflation projections last month, will hold its benchmark main refinancing rate at a historic low of 0.75 percent on Jan. 10, economists forecast in a Bloomberg survey.

Citigroup Inc. expects the ECB to cut rates as soon as February. “Signals by President Draghi that the Governing Council may be moving closer to lowering rates could add to the cyclical headwinds” for the euro, Citigroup’s currency strategists Valentin Marinov and Josh O’Byrne, wrote in a research note today.