The yen tumbled by the most in 17 months against the dollar after the Bank of Japan announced larger-than-expected economic stimulus measures that tend to devalue the currency.
The yen slid at least 1.5% versus all of its 16 major peers as BOJ Governor Haruhiko Kuroda and his board doubled monthly bond purchases and adopted a two-year horizon to achieve their 2% annual inflation goal. The euro fell to the lowest since November against the dollar after European Central Bank President Mario Draghi said policy will remain accommodative for as “long as needed.” The pound rose as the Bank of England refrained from boosting asset purchases.
“The BOJ certainly surprised to the upside of expectations,” said Peter Kinsella, a currency strategist at Commerzbank AG in London. “They’ve done everything that’s required to start a reflation of the economy. It’s very clear the direction is to sell yen and it’s going to weaken further.”
The yen slid 2.5% to 95.42 per dollar at 2:07 p.m. London time after falling as much as 2.7%, the most since Oct. 31, 2011, when Japan intervened in foreign-exchange markets to weaken its currency. The yen slumped 2% to 121.96 per euro. The euro declined 0.5% to $1.2781 after falling to $1.2746, the lowest level since Nov. 21.
Commerzbank’s year-end target of 100 yen per dollar may be achieved sooner than expected, Kinsella said.
Japan’s central bank said it will buy 7 trillion yen of bonds a month, exceeding the median 5.2 trillion yen estimated by economists surveyed by Bloomberg News. BOJ officials also temporarily suspended a cap on some bond holdings and dropped a limit on debt maturities at the two-day meeting, the first to be led by Kuroda since he took office last month.
Expectations for expanded monetary easing under the BOJ’s new leadership have driven the yen down 17% in the past six months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar rose 3.1% and the euro climbed 0.8%.
“The BOJ certainly met and beat market’s expectations,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “Reaching the inflation target in two years would be an objective that will be difficult to achieve but I think what we have seen from the BOJ nonetheless looks impressive.”