Yen Weakens on BOJ Stimulus Bets, Gains in Equities

The yen weakened against all its major counterparts as stocks rose and investors speculated that the Bank of Japan (8301) will expand monetary stimulus next week.
New Zealand’s dollar reached its highest level in two weeks following the Reserve Bank’s decision to keep interest rates unchanged. The euro traded below $1.30 for a third day before data forecast to show German consumer confidence will fail to improve in November and French household sentiment fell for a fourth month, adding to signs that the region’s debt crisis is hampering growth in its biggest economies.

4:51

Oct. 24 (Bloomberg) -- Huw Pill, chief European economist at Goldman Sachs Group Inc., talks about Europe's sovereign-debt crisis, the outlook for a Spanish bailout request and the European Central Bank's bond-purchase strategy. He spoke yesterday with Bloomberg's Simon Kennedy in London. (Source: Bloomberg)

24:04

Oct. 24 (Bloomberg) -- Klaus Regling, head of the European Stability Mechanism, talks about the European debt crisis, the role of the ESM and the outlook for Europe's economy and bond market. He spoke with Bloomberg's Linda Yueh in Luxembourg yesterday. (Source: Bloomberg)

“The market is pricing in additional easing by the BOJ next week,” said Masakazu Sato, a Tokyo-based foreign-exchange adviser at Gaitame Online Co. “Should the BOJ ease after its counterparts in the U.S. and Europe held off on additional stimulus, that would be received well by the market and cause a yen sell-off.”
Japan’s currency fell 0.2 percent to 79.98 per dollar as of 1:44 p.m. in Tokyo from the close in New York, nearing the three-month low of 80.01 reached on Oct. 23. It dropped 0.3 percent to 103.81 per euro. The 17-nation euro fetched $1.2980 from $1.2974 yesterday, when it reached $1.2921, the weakest level since Oct. 15.
The Nikkei 225 Stock Average (NKY) of Japanese shares rallied 0.3 percent today, contributing to a 0.1 percent gain by the MSCI Asia Pacific Index. The BOJ will release its forecast for Japan’s consumer prices and growth on Oct. 30 when it holds its second policy meeting this month.

BOJ Meeting

Japan’s Economy Minister Seiji Maehara, who has been calling for more action from the central bank, said earlier this week that he may attend the Oct. 30 meeting if his schedule permits. He was present at the central bank’s previous gathering this month, the first minister to do so for more than nine years. The BOJ last time expanded stimulus on Sept. 19, boosting the size of its asset-purchase program by 10 trillion yen ($125 billion).
The yen weakened 2.6 percent in the past month, the biggest decline among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1.2 percent, while the dollar appreciated 0.5 percent.
Reserve Bank of New Zealand Governor Graeme Wheeler left the official cash rate at a record low 2.5 percent. Sluggish domestic demand and a rising currency have pushed inflation below the central bank’s target range of 1 percent to 3 percent target range.

Wheeler’s RBNZ

“Wheeler disappointed those in the market who had been expecting an easing signal,” said Imre Speizer, a market strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “The market was fully priced for a January rate cut, and that pricing will be at least partially unwound.”
New Zealand’s currency, nicknamed the kiwi, touched 82.35 U.S. cents, the strongest since Oct. 9, before trading at 82.20. It jumped as much as 0.6 percent to 65.87 yen, the highest since April 30.
GfK SE (GFK), a market-research company in Nuremberg, Germany, will probably say tomorrow that its consumer-sentiment index will remain at 5.9 for a fourth-straight month in November, according to the median estimate of economists in a Bloomberg News survey. A report from the Ifo institute yesterday showed German business confidence unexpectedly fell to the lowest in more than 2 1/2 years.

Consumer Confidence

In France, household sentiment probably dropped to 84 this month from 85 in September, a separate poll of economists showed. Another report from Spain may show that the unemployment rate increased to 25 percent in the third quarter.
“The recession that you’ve got in the peripheries is certainly now spilling over into the core,” Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s biggest lender, said of Europe’s economies. “France is in a recession, Germany, if not in a recession, then is very close to it, so that’s certainly not a good sign, and the euro dipped a bit.”
Demand for the dollar was limited after the Federal Reserve said it plans to continue bond buying in a third round of quantitative easing, which tends to debase the U.S. currency.
The Fed said yesterday in a statement after a two-day policy meeting that the U.S. economy is still growing modestly and unemployment remains elevated.
The central bank said it will maintain $40 billion in monthly purchases of mortgage-backed securities while keeping a pledge to hold interest rates at virtually zero until at least mid-2015. It also said a program to lengthen the average maturity of its holdings will remain in place until year-end, when it’s scheduled to expire.

U.S. GDP

U.S. gross domestic product rose at a 1.9 percent annual rate in the third quarter after expanding at a 1.3 percent pace the prior three months, according to the median forecast economists surveyed by Bloomberg ahead of advance data by the Commerce Department tomorrow. It would be the first back-to-back readings lower than 2 percent since the U.S. was emerging from the recession in 2009.
“There’s still a risk the FOMC will do more quantitative easing,” said Commonwealth’s Capurso. “That potential for QE will weigh on the dollar,” he said, referring to the Federal Open Market Committee and quantitative easing.