The yen traded at an almost 20-month low against the dollar after the Bank of Japan boosted monetary stimulus and agreed to review its 1 percent inflation target.
Japan’s currency has fallen against all its major counterparts this month as newly elected Prime Minister Shinzo Abe called for BOJ Governor Masaaki Shirakawa to double the inflation goal. The 17-nation euro was close to an eight-month high against the dollar as regional consumer confidence rose from a three and a half year low. Brazil’s real rose after the central bank cut inflation forecasts, signaling room to increase interest rates, while South Africa’s rand fell for a second day versus the dollar.
“ Shirakawa was more dovish than expected, as we did have a balance-sheet increase and the fact that he was willing to think about moving the goal post was encouraging,” said Greg Anderson, the North American head of G-10 currency strategy at Citigroup Inc. in New York. “The whole world is short yen at this stage and they are turning positions. That was the response you got last night, but the more dovish response from the BOJ means you should be adding to short-yen.” A short position is a bet that an asset will decline in value.
The yen was little changed at 84.40 per dollar at 10:55 a.m. New York, after falling yesterday to the least since April 12, 2011. Japan’s currency was little changed at 111.44 per euro. The common currency advanced 0.1 percent to $1.3242. It appreciated to $1.3308 yesterday, the strongest since April 3.
The yen may gain versus the dollar and euro as the 14-day relative strength index for the Japanese currency was at 26.4 versus the greenback and 20.4 against the shared currency. A reading below 30 indicates an asset’s value may have declined too far, too quickly.
Sweden’s krona was the biggest winner against the dollar and euro. It gained 0.6 percent to 6.5077 per dollar and advanced 0.5 percent to 8.6174 versus the euro.
Brazil’s real added 0.4 percent to 2.0633 per dollar, the highest level on a closing basis since Nov. 13. Brazil’s central bank lowered its forecast for consumer prices to 4.8 percent for 2013, even as the benchmark Selic rate remains at a record low 7.25 percent. That compares to analyst estimates of 5.4 percent inflation if the Selic rate remains unchanged.
South Africa’s rand fell 0.3 percent to 8.5100 per dollar.
The euro has gained this week as an index of household confidence climbed to minus 26.6 this month from minus 26.9 in November, according to the European Commission in Brussels. A German report yesterday showed business confidence was higher than economists forecast in December and Standard & Poor’s raised Greece’s credit rating from selective default on Dec. 18.
The Dollar Index fell for a fifth day, declining 0.1 percent to 79.253 after falling to 79.008 yesterday, the lowest level since Oct. 18. Losses in the gauge, which tracks the greenback against the currencies of six major trading partners, accelerated after a Commerce Department report showed the U.S. economy grew at 3.1 percent annual rate in the third quarter, more than previously forecast.
Lawmakers are struggling to reach agreement to avert more than $600 billion in tax increases and spending cuts set to start in January. Even as Republicans seek to bridge their internal divide over taxes by combining spending reductions with House Speaker John Boehner’s plan, the White House has declared his proposal dead on arrival and told business leaders that talks between President Barack Obama and Boehner are regressing.
The BOJ kept its credit-lending program at 25 trillion yen and left its key interest rate unchanged between zero and 0.1 percent at its two-day meeting in Tokyo. Abe, whose party swept to victory in the Dec. 16 election, will have a chance to reshape the BOJ early next year when the terms of Governor Shirakawa and his two deputies expire.
“There’s a sell on the fact,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, referring to the BOJ decision. “The market got a little bit over-excited about the inflation target. The move we saw in the yen was over-extended and we’re now seeing some pullback.”
The yen is likely to trade at 83 per dollar at the end of June, Rabobank’s Foley said.
Japan’s currency has tumbled 12.8 percent this year, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has weakened 3.4 percent and the euro has dropped 1.1 percent.