The yen slid to 2 1/2-year lows on Friday after Japanese Prime Minister Shinzo Abe said the Bank of Japan should consider maximising employment as a policy goal on top of its current price stability mandate.
Abe’s comments, made in an interview with the Nikkei newspaper published on Friday, put renewed pressure on the yen as having a dual mandate, similar to the U.S. Federal Reserve’s, could make the BOJ undertake more aggressive easing.
The dollar rose to as high as 89.35 yen, its strongest since June 2010, before giving up some of its gains to trade at 88.90 yen, still up 0.2 percent from late U.S. levels.
Also adding pressure to the yen, data showed Japan posted a current account deficit of 222.4 billion yen ($2.5 billion) in November. It was the first deficit in 10 months and far larger than economists’ median forecast of an almost negligible deficit of 3.5 billion yen ($39 million).
Ayako Sera, a market economist at Sumitomo Mitsui Trust Bank, said the data underscored Japan’s slow trade with China after a territorial dispute sparked anti-Japan riots in September.
“The deficit in the current account is likely to continue in the next couple of months given its seasonal pattern,” she said.
The dollar’s gain accelerated after a break of the 88.50 option barrier triggered short-covering in thin early Wellington trade.
“Short-term players who had earlier taken profits are now re-entering. A rise above 90 is within sight now,” said a trader at a Japanese bank.
The euro also climbed to 118.58 yen, a high last seen in May 2011, and last stood at 117.79 yen, slightly above late U.S. levels.
The yen has been sinking since November on speculation of more easing from the BOJ. Traders expect the central bank to adopt an explicit two percent inflation target at its policy meeting on January 21-22 to fall in line with the aims of the Liberal Democrat Party-led government elected last month.
But with the yen’s climb having shot to about 10 percent against the dollar and 13.5 percent versus the euro in less than two months, some traders have begun to worry about friction with other countries.
Abe’s drive could be seen as a beggar thy neighbour policy aimed at devaluing the currency at the expense of its trading partners, they say.
“I can easily imagine the dollar falling a few yen quickly if, say, (U.S. Treasury Secretary nominee Jack) Lew raises even a slightest sign of concerns about Japan’s policy,” said a trader at a Japanese trading firm.
But underlying pressure on the yen remains constant as the BOJ’s deepening bias for easing stands in stark contrast to other major central banks.
For example, minutes of the U.S. Federal Reserve’s last policy meeting published last week and recent remarks by some officials at the bank showed concern about the potential side effects of its stimulus.
And on Thursday, European Central Bank President Mario Draghi gave no indication it would cut rates in the near future, disappointing euro bears who had thought the ECB would be inclined to cut rates to shore up the wobbly euro zone economy.
Draghi’s apparent about-face from last month’s dovish stance lifted the euro 1.6 percent on Thursday, its biggest daily gain in five months, and it kept that gain in Asia, trading at $1.3262.
The single currency is not far from an 8 1/2-month peak of $1.33085 hit last month.
The euro was also bolstered by solid demand at a sale of mostly two-year Spanish debt, which caused Spain’s benchmark 10-year bond yields to fall to a 10-month low.
The British pound, hurt by a string of weak economic data in recent days, also rebounded sharply on Thursday after the Bank of England left interest rates and its quantitative easing target unchanged.
The pound stood at $1.6155, maintaining its 0.8 percent gain on Thursday.
The Australian dollar clung near a four-month high hit on Thursday after strong Chinese trade data. The Aussie unit fetched $1.0586, near Thursday’s high of $1.0599.