The yen fell to the weakest level since April 2011 versus the dollar after Shinzo Abe’s Liberal Democratic Party won Japanese elections yesterday, giving him a mandate to act on pledges of expanded monetary stimulus.
Japan’s currency declined as Abe has called for the central bank to double its inflation goal to 2 percent and undertake unlimited easing to revive economic growth. Bank of Japan policy makers meet on Dec. 19-20. Sweden’s krona climbed against all of its major peers before the nation’s central bank sets policy tomorrow. The pound strengthened to a two-month high against the dollar.
“People that fight the Abe government will find themselves out of control,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Nobody wants to fight this trend and there is still a lot of interest to sell yen against dollar and euro on dips.”
The yen fell 0.3 percent to 83.75 per dollar at 10:49 a.m. New York time, after depreciating to the weakest since April 12, 2011. Japan’s currency dropped 0.3 percent to 110.26 per euro, after declining to the least since March 21. The euro was little changed at $1.3166.
Japan’s currency has lost 11.9 percent this year, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after New Zealand’s dollar. The dollar is off 3.1 percent while the euro has dropped 1.5. For the past month, the yen is down 5.4 percent, the greenback fell 2.3 percent and the shared currency is up 1.4 percent.
The Swedish krona advanced amid speculation that the Riksbank may not give any indication of a continued easing of monetary policy tomorrow. All but one of 17 economists surveyed by Bloomberg predicted the bank will cut its main repurchase rate by 0.25 percent to 1 percent when policy makers publish their decision tomorrow. The currency dropped the most in two months against the euro last week.
The krona traded 0.5 percent stronger at 8.7465 per euro after dropping 1.7 percent last week, the biggest decline since the period ending Oct. 5. It appreciated 0.5 percent to 6.6440 per dollar.
The pound gained against the dollar and the yen before a report that economists said will show inflation remained at its fastest since May, adding to evidence the central bank won’t continue to expand its balance sheet. The Labor Department reported last week consumer prices in the U.S. fell more than forecast, allowing the Federal Reserve to undertake more quantitative easing.
The pound rose 0.2 percent to $1.6200, after gaining to the most since Oct. 5.
The euro may advance versus the dollar to the strongest level in almost 10 months after breaking key resistance hurdles of $1.3140 to $1.3172, Cilline Bain, a London-based technical analyst at Credit Suisse Group AG, wrote to clients.
”Last week’s very sharp rally completed a long-term inverted head-and-shoulders reversal pattern,” Bain said in a telephone interview. “That suggests that a much longer-term rally to $1.40 is going to unfold in the next six months.”
Abe’s LDP won 294 seats in Japan’s 480-member lower house of parliament. Outgoing Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three-quarters of its lawmakers, according to public broadcaster NHK.
“There is definitely more room for yen weakness going into next year,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S in Copenhagen. “What’s going on in Japan is very significant. There’s likely to be some easing at this week’s meeting, but more important is that we might see a hike of the inflation target next year.”
The yen earlier fell as much a 1.2 percent against the dollar, the biggest drop since Nov. 15.
The yen’s declines may be limited against the dollar as positioning becomes more crowded. Futures traders increased bets to the most since July 2007 that the yen will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. Net shorts were at 94,401 wagers on Dec. 11, compared with 90,326 a week earlier.
The 14-day relative strength index was at 25.3 below the 30 level for a fourth day. A reading of 30 or lower indicates an asset may have fallen too far too quickly and is due for a correction. The yen’s relative strength versus the euro was 22.7.