The yen rose for a second day vs. the dollar, extending a rally from a 2 1/2-year low, amid bets the currency’s three-month slide already incorporates many of the stimulus measures proposed by the Bank of Japan.
The euro fell as much as 0.4%, approaching its 50-day moving average at $1.2996. The yen gained versus all of its 16 most-traded peers even as Finance Minister Taro Aso said the nation will buy euro-denominated sovereign debt to help weaken the currency. Sweden’s krona declined after minutes of the central bank’s December meeting showed two policy makers considered a deeper interest-rate cut.
“The currency can only fall so far on jawboning alone,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview. “It appears that a fresh leg lower for the yen may be dependent on actual policy action by Japanese authorities, and that may be weeks away.”
The yen appreciated 0.3% to 87.55 per dollar at 8:59 a.m. in New York after sliding to 88.41 on Jan. 4, the weakest level since July 2010. Japan’s currency appreciated 0.5% to 114.54 per euro. The euro declined 0.3% to $1.3083 after strengthening 0.4% yesterday.
“We did have a decent move higher in the euro yesterday, so we’re kind of taking back some of yesterday’s gains,” Michael LaVina, a senior trader in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview.
The BOJ next meets on Jan. 21-22. Policy makers boosted stimulus at their previous gathering in December while refraining from raising their inflation goal from 1%. Newly elected Prime Minister Shinzo Abe had called for a doubling of the inflation measure.
Japan will use foreign-exchange reserves to buy European Stability Mechanism bonds to help weaken the yen, Aso told reporters today in Tokyo. The decision will also help the “financial stability of Europe,” he said.
The Japanese government will watch the currency market “closely” and will strengthen cooperation with the BOJ to counter deflation, according to a draft of its emergency economic measures released today. Abe said on Jan. 1 that “bold” monetary policy was one of the three prongs of his economic plan.
“Quite a lot is priced in for the Bank of Japan to do, and there’s still a lot to happen,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “Markets are backing off a bit. Short-term, we may need to see some action to sustain the move lower.”
The yen has tumbled 6.8% in the past month, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar weakened 0.4% and the euro gained 1%.
Sweden’s krona fell versus all its major counterparts after the minutes of the central bank’s Dec. 17 meeting showed deputy governors Per Jansson and Barbro Wickman-Parak “thought a great deal” about cutting the repurchase rate by half a percentage point last month.
The Riksbank on Dec. 18 lowered its benchmark by a quarter of a percentage point to 1%. While Deputy Governor Lars E.O. Svensson voted to cut the rate by 0.5% point, both Jansson and Wickman-Parak considered such a reduction before joining the majority decision of the six-person board, the minutes showed.
The krona dropped 0.6% to 8.5818 per euro and slid 0.9% to 6.5601 per dollar.
Investors should sell the krona at 8.5650 per euro, targeting a decline to 8.80, BNP Paribas strategists led by Steven Saywell in London, wrote in a note to investors. The krone last traded at 8.80 per euro on Dec. 17.
The pound fell toward the weakest level in a month against the dollar after an industry report showed U.K. retail sales slowed in December, adding to signs Britain’s economy is lagging behind U.S. growth.
Sterling dropped before a Bank of England meeting this week at which policy makers are forecast to keep interest rates at a record low as they struggle to stoke a recovery. The U.K. economy shrank 0.1% last year, while the U.S. expanded 2.2%, according to a Bloomberg News surveys.
“U.S. growth is outperforming U.K. to such an extent that the last time we saw this kind of a differential was pretty much in the 1980s,” said Peter Kinsella, a senior foreign-exchange strategist at Commerzbank AG in London. “Definitely you’ll see lower levels in cable over the course of the year,” he said, referring to the pound-dollar exchange rate.
The pound dropped 0.4% to $1.6056 after falling to $1.6010 on Jan. 4, the lowest level since Dec. 7. The U.K. currency was little changed at 81.45 pence per euro.