The yen strengthened from its weakest level against the dollar since June 2010 as Bank of Japan officials started a two-day policy meeting in Tokyo.
Japan’s currency gained versus all 16 of its major counterparts after slumping since October amid speculation the BOJ, under pressure from the government of new Prime Minister Shinzo Abe, will boost stimulus to lift the economy out of recession. The yen also rose as data showed traders became the least bearish on the currency in eight weeks. Sweden’s krona fell as Finance Minister Anders Borg suggested the country would benefit from a weaker currency. The Swiss franc advanced.
“It’s hard to see what the BOJ could say tomorrow that would exceed market expectations,” said Daragh Maher, a currency strategist at HSBC Holdings Plc in London. “It’s a natural positioning ahead of the Bank of Japan’s meeting given the yen’s decline.”
The yen climbed 0.6% to 89.60 per dollar as of 1:35 p.m. in London after depreciating to 90.25, the weakest since June 23, 2010. Japan’s currency rose 0.6% to 119.32 per euro. The euro was little changed at $1.3316.
U.S. financial markets are shut today for a public holiday.
The BOJ will expand asset purchases this week, according to all 23 economists in a Bloomberg News survey, with the median estimate for a 10 trillion-yen increase. Abe has announced a spending package of similar size and is calling on the central bank to double its inflation target to 2%.
The BOJ will need to slow monetary easing if the effects on prices and the yen go too far, according to Koichi Hamada, an economist and adviser to Abe on choosing a new central bank chief when Governor Masaaki Shirakawa’s term ends in April.
“If it goes too far, it should be stopped,” he said yesterday after appearing with Economy Minister Akira Amari on NHK Television.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on an advance -- so-called net shorts -- was 65,727 in the period through Jan. 15, figures from the Washington-based Commodity Futures Trading Commission showed. That’s the least since the reading on Nov. 20.
The yen will trade at 87 per dollar and 114 per euro by March 31, according to Bloomberg surveys of analysts. The dispersion in estimates, measured by their variation from the mean, was 3.6% for dollar-yen and 4.7% for euro- yen quarter-end projections. The two figures are the widest among 16 Group of 10 currency pairs tracked by Bloomberg.
One-month implied volatility for the yen against the dollar fell to 11.66% today after climbing to 12.6%, the most since August 2011.
Japan’s currency has tumbled 13% in the past three months, the biggest decline among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar dropped 0.1% and the euro rose 2.4%.
Sweden’s krona declined for a second day against the dollar as Borg said the central bank’s monetary policy is propping up the currency and preventing the exchange rate from helping to sustain growth.
Because of high consumer debt levels “monetary policy in Sweden as a whole perhaps is a little bit tighter than in other countries and it’s clear that this supports the exchange rate,” he said in Stockholm. “Given the weak economic development it would have been an advantage if the krona had weakened somewhat, that’s clearly the case.”
The Riksbank cut its repurchasing rate for a fourth time in a year last month, bringing it to 1%, and indicated it has finished easing policy. The European Central Bank’s rate is 0.75%.
The krona dropped 0.2% to 8.6930 per euro and slid 0.2% to 6.5285 per dollar.
The franc advanced for a second day against the euro after tumbling last week to the lowest since the Swiss National Bank imposed a cap on the currency in 2011.
Option traders are pushing the cost of bearish wagers on Swiss shares to the lowest level in almost seven years amid optimism the recent decline in the franc will benefit exporters.
Puts protecting against a 10% drop in the Swiss Market Index cost 3.6 points more than calls betting on a 10% rally, according to three-month options data compiled by Bloomberg. The price relationship slid to 3.09 on Jan. 17, the lowest since May 2006.
The franc gained 0.2% to 1.2420 per euro.