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.”
The euro weakened against most of its major counterparts as the ECB left its benchmark interest rate at a record-low 0.75% and Draghi said the economic recovery was subject to “downside risks.”
“Our monetary policy stance will remain accommodative for as long as needed,” he said at a press conference in Frankfurt. “In the coming weeks, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.”
The currency fell earlier after Markit Economics said its index of services output in the region declined to 46.4 in March from 47.9 in February. That’s below an initial estimate of 46.5 published March 21. A reading below 50 shows contraction.
“The rhetoric from Draghi is generally downbeat,” said John Hardy, head of currency strategy Saxo Bank A/S in London. “It’s risk off and German bunds are rallying which tends to support the dollar.”
The pound rose for the first time in five days against the euro as the Bank of England kept its asset-purchase target at 375 billion pounds ($567 billion) in a decision that was forecast by 34 of 37 economists in another Bloomberg survey.
Sterling was also boosted after an industry report showed Britain’s services output unexpectedly accelerated in March.
“The services data was a bit better than expected, which has given sterling a bit of gumption,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “No-one really expected a policy move today but there may have bit a bit of relief that there wasn’t an increase in the asset- purchase target. However, that doesn’t mean its completely off the table.”
Sterling gained 0.5% to 84.51 pence per euro and was little changed at $1.5117.
South Korea’s won slid to a six-month low against the dollar as the risk of conflict with North Korea escalated.
“North Korea is heightening its threats day by day and that risk factor is having a negative impact on South Korean financial markets,” said Jeon Seung Ji, an analyst at Samsung Futures Inc. in Seoul. “Rising tension is prompting foreign investors to sell more Korean stocks, weakening the currency.”
The won fell 0.5% to close at 1,123.71 per dollar in Seoul after touching 1,125.50, the weakest since Sept. 13. The currency slumped 5.3% in the past three months.