Yen weakens versus euro amid Bank of Japan stimulus speculation

The yen weakened to four-month low versus the euro as investors speculated the Bank of Japan will expand monetary easing at its meeting this week.

The Japanese currency fell to its lowest level in a week versus the dollar. Taiwan’s dollar and South Korea’s won rallied as international investors increased holdings of Asian stocks after the Federal Reserve announced last week it would undertake an asset purchase program. Brazil’s real dropped the most since July after the central bank intervened to help exporters.

“The Fed’s actions last week have turned the spotlight on the BOJ’s much more limited balance-sheet policy response,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. Positive risk sentiment from the U.S. central bank’s announcement has also weighed on the yen, he said.

The yen fell 0.2 percent to 103.16 per euro at 3:49 p.m. New York time, after touching the lowest level since May 9. Japan’s currency dropped 0.5 percent to 78.74 per dollar, reaching the weakest since Sept. 7. The euro weakened 0.2 percent to $1.3101.

Ruskin said he expects the euro may rally to $1.3480.

Bank Meeting

Japan’s central bank may follow the Fed and the ECB in expanding its balance sheet. The meeting starts tomorrow and results will be announced Sept. 19.

The yen has weakened 2.3 percent last week, the biggest decline among the 10 developed-nation currencies on the Bloomberg Correlation-Weighted Indexes. The dollar fell 1.7 percent and the euro strengthened 1.7 percent.

“There’s speculation that the BOJ will do something to increase quantitative easing through their asset purchase program,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. “It’s primarily on the euro-yen. That’s the big driver of the euro going higher.”

BOJ Governor Masaaki Shirakawa said on Sept. 6 that the yen’s appreciation causes a decline in Japan’s exports and that its negative effect is “dominant.” Japan’s markets are closed today for a national holiday.

Demand for the yen was also damped as China and Japan’s worst diplomatic crisis since 2005 is putting at risk a trade relationship that’s tripled in the past decade to more than $340 billion.

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