Yen falls to weakest since 2010 as BOJ governor accelerates exit

The yen touched the weakest level in almost three years against the dollar after the Bank of Japan governor said he will step down early, accelerating a transition that may aid the prime minister’s plan for aggressive easing.

The euro fluctuated against the dollar as French President Francois Hollande called for leaders to steer the currency’s exchange rate, and the European Central Bank’s balance sheet shrank to the smallest in almost a year after euro-area banks started to repay emergency loans. Australia’s dollar weakened after the central bank said the inflation outlook allowed scope for further interest-rate cuts. BOJ Governor Masaaki Shirakawa will exit on March 19, almost three weeks before his term was due.

“The yen is a big mover today and that has to do with this announcement from Shirakawa that he’s resigning earlier,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “The rise in euro yen is more of a Japanese yen move.”

The yen slid 0.8% to 93.13 per dollar at 9:42 a.m. New York time after touching 93.52, weakest since May 13, 2010. The euro rose 0.8% to 125.81 yen after reaching 126.97 on Feb. 1. The shared currency was little changed at $1.3516 after rising and falling 0.4 percent.

The JPMorgan G7 Volatility Index, calculated based on premiums on currency options, climbed to 9.4%, the most since Aug. 2. It dropped to a more than five-year low of 7.06 on Dec. 18.

Balance Sheet

“We can’t let the euro fluctuate according to the mood of the market,” Hollande told reporters at the European Parliament in Strasbourg, France, becoming the most powerful European official to warn that the rising currency may deepen the recession.

The ECB balance sheet dropped 159.1 billion ($215.1 billion) to 2.77 trillion euros in the week ended Feb. 1, the Frankfurt-based central bank said in a statement. That’s the lowest level since Feb. 24 last year. ECB lending to banks declined 140.8 billion to 1.02 trillion.

The ECB’s balance sheet is shrinking just as the Federal Reserve and Bank of Japan expand theirs through further monetary stimulus. That’s pushing the euro higher, threatening to undermine European exports and a recovery from recession. The ECB meets Feb. 7.

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