Yen weakens against euro on BOJ stimulus bets; pound strengthens

November 1, 2012 05:09 AM

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The yen weakened against the euro and the dollar as investors await the release of minutes of the Bank of Japan’s Oct. 4-5 meeting amid speculation the central bank will ease monetary policy further.

The Japanese currency fell for a third day versus the euro after Panasonic Corp. forecast the second-biggest loss in company history, fanning speculation the nation’s trade deficit will worsen. The pound climbed to the highest level in two weeks versus the dollar a report showed U.K. house prices rebounded in October and Britain’s biggest business lobby raised its economic forecasts for this year and next.

“The expectation is still in the market that because of the building political pressure the BOJ will have to move towards a more aggressive monetary policy stance,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “As we move into 2013 our bigger picture story is that we expect this yen-weakening trend to extend further.”

The yen dropped 0.4 percent to 103.74 per euro as of 7:58 a.m. New York time after losing 0.4 percent in the past two days. The Japanese currency fell 0.3 percent to 80.03 per dollar. The euro was little changed at $1.2963.

BOJ Easing

The BOJ increased its asset-purchase program on Oct. 30 by 11 trillion yen to 66 trillion yen to bolster growth through lower borrowing costs. In the previous meeting earlier that month, the central bank avoided adding to stimulus.

Panasonic, Japan’s second-biggest TV maker, scrapped its profit forecast yesterday, saying the net loss may total 765 billion yen in the year ending March 31. Nintendo Co., the world’s largest maker of video-game machines, cut its full-year net income projection last week by 70 percent, citing a stronger yen.

“Expectations of additional monetary easing by the BOJ still remain in the markets,” said Shinji Kunibe, chief portfolio manager for fixed-income investment in Tokyo at Nissay Asset Management Corp., which oversees the equivalent of $65 billion. “Considering the terrible earnings in the electronics sector and the prospect of a widening trade deficit, I can’t help thinking the era of yen weakness will come sooner than we thought.”

Japan’s imports exceeded exports by 3.22 trillion yen in the six months ended Sept. 30, the biggest trade deficit for a fiscal half-year period, the Ministry of Finance said on Oct. 22. The nation posted a shortfall in September for a third- consecutive month.

Pound Rises

Britain’s currency strengthened against all but one of its major peers. The cost of a home increased 0.6 percent from September, when it fell 0.4 percent, the Nationwide Building Society said in an e-mailed statement today.

The economy will stagnate this year and expand 1.4 percent in 2013, the Confederation of British Industry said in a report published in London today. In August, it predicted a 0.3 percent contraction and a 1.3 percent expansion respectively.

Sterling added 0.2 percent to $1.6160, after touching $1.6175, the highest since Oct. 17. It strengthened for a second day against the euro, gaining 0.2 percent to 80.22 pence.

The U.S. currency pared a decline against the euro as economists said as American report today will show manufacturing growth slowed in October. The impact of Hurricane Sandy on U.S. gross domestic product is still being gauged with some estimates that it caused as much as $50 billion of damage.

‘Growth Concerns’

“The bias is towards a slightly firmer dollar,” said Steven Barrow, head of group-of-10 research at Standard Bank Plc in London. “Growth concerns are first and foremost, more so in the euro zone, and that’s not withstanding we’re trying to work out how much the storm will cost GDP data in the U.S.”

Data today may show manufacturing in the U.S. expanded at a slower pace in October. The Institute for Supply Management’s factory index was little changed at 51 from 51.5 in September, according to the median estimate of 88 economists surveyed by Bloomberg. A reading of 50 is the dividing line between expansion and contraction.

The dollar has risen 0.2 percent in the past month against nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen posted the biggest drop in the period, falling 2.6 percent, and the euro gained 0.9 percent.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, rose less than 0.1 percent to 79.951.

The JPMorgan G7 Volatility Index, calculated based on premiums on currency options, was at 7.53 percent after touching 7.46 percent yesterday, the lowest since October 2007.

Bloomberg News

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