Yen gains on speculation BOJ action is priced in

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.

BOJ Meeting

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.

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