The yen weakened beyond 100 per dollar for the first time in four years as the Bank of Japan’s deflation-fighting measures have the currency headed for its longest streak of monthly losses in almost two decades.
The dollar strengthened against most its major counterparts as a report showed U.S. claims for jobless benefits unexpectedly dropped to the lowest level in more than five years, adding to speculation the U.S. will curtail stimulus before central banks in Europe and Japan. The yen has dropped 4.2% since April 4 when BOJ Governor Haruhiko Kuroda outstripped economist forecasts by pledging to double monthly bond purchases and scoop up longer-term debt to reach a 2% annual inflation goal. The yen last traded at 100 on April 14, 2009.
“Signs of an improving U.S. job market have finally chipped away and made a difference against the yen,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview from Washington. “We’ve seen these brightening prospects for the U.S. job market, a burst of news last week with the payrolls number, and again today with the weekly jobless claims tally.”
The yen dropped 1.5% to 100.55 per dollar as of 3:55 p.m. in New York after falling as much as 1.8%, the biggest drop since April 2009. It earlier appreciated as much as 0.4%. Japan’s currency fell 0.6% to 131.04 per euro. The dollar rose 0.9% versus the shared currency to $1.3033.
Japan’s currency extended gains and accelerated beyond 100 after a Treasury auction of $16 billion in 30-year bonds produced a lower-than-forecast yield.
“There has been a compelling argument that Japanese investing should be flooding into Treasuries,” said Eric Lascelles, the chief economist at Toronto-based Royal Bank of Canada Global Asset Management, which oversees $280 billion. “We’ve certainly seen a lot of front running of that effort, but there has been very little evidence of actual flows.”
While Kuroda’s April 4 announcement spurred speculation that domestic money managers would seek higher yields in the U.S. and other markets, Japanese investors cut holdings of overseas debt for a sixth-straight week in the period ended April 19, the longest streak since January 2010, Ministry of Finance data show. The MOF is scheduled to report the data, covering the past two weeks, this evening.
“This report will be watched closely for evidence of increased buying of foreign securities by Japanese investors,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “The anticipation of the number could have something to do with the move.”
The BOJ increased monthly bond purchases on April 4 to exceed 7 trillion yen ($700 billion) at Kuroda’s first policy meeting in charge, exceeding the 5.2 trillion yen forecast by economists in a Bloomberg News survey. It also suspended a cap on some bond holdings and dropped a limit on debt maturities.
Policy makers maintained the unprecedented plan at an April 26 meeting and predicted inflation will almost match their target in two years even after a report highlighted deflation’s grip.
Kuroda told reporters after the second April meeting that policy adjustments would be made if necessary and the bank will keep its stimulus until stable 2% gains in consumer prices are realized.
“We’re opening up the door to look at 105 in the next few months, and 110 by end of year seems perfectly reasonable,” Alan Ruskin, global head of Group of 10 foreign-exchange strategy in New York at Deutsche Bank AG, the biggest currency trader in a Euromoney Institutional Investor Plc poll, said in a telephone interview.
The yen erased an earlier advance versus the dollar after U.S. applications for unemployment insurance payments decreased by 4,000 to 323,000 in the week ended May 4, the least since January 2008, Labor Department figures showed today. Economists forecast 335,000 claims, according to the median estimate in a Bloomberg survey. The average over the past month was the lowest since before the last recession began.
Dollar-yen was the most active trading pair as over-the- counter foreign-exchange options totaled $28 billion today, matching yesterday’s turnover, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg.
Volume in options on the dollar-yen exchange rate amounted to $8.8 billion, the largest share of trades at 31%. Dollar-yuan options were the second most-actively traded, at $3.2 billion, or 11%.
Dollar-yen options trading was 33% less than the average of the past five Thursdays at a similar time in the day, and yuan trading rose 57%, according to Bloomberg analysis.
The pound advanced versus the euro as the Office for National Statistics said Britain’s industrial output rose 0.7% in March. Economists surveyed by Bloomberg forecast a gain of 0.2%. The U.K.’s gross domestic product increased 0.8% this quarter through April, according to NIESR estimates.
The BOE’s Monetary Policy Committee kept its bond-purchase target at 375 billion pounds ($583 billion) at the end of a two- day meeting in London, as forecast by all except one of 44 economists surveyed by Bloomberg. The majority on the nine- member MPC said last month that monetary policy was already “highly stimulatory,” according to minutes of the April 3-4 meeting released April 17.
The “recent U.K. macro data I suggest is just sufficient to warrant no further QE at this time,” Neil Jones, head of hedge-fund sales at Mizuho Corporate Bank Ltd. in London, wrote in an e-mail. “The pound is performing well against the euro and holding its own against the dollar.”
The pound gained 0.3% to 84.38 pence per euro after advancing as much as 0.4%, the most since May 2.
The yen’s 14% plunge this year, the most among major currencies, has spurred complaints from trading partners concerned it will cost their exporters market share. South Korean Finance Minister Hyun Oh Seok said in April that a falling yen is having a “considerable impact” on South Korea’s economy that’s bigger than threats from North Korea.
Honda Motor Co. and Mazda Motor Corp. forecast higher profits this fiscal year and the Topix index of shares posted its longest rally since 2005 as Japan Prime Minister Shinzo Abe’s Liberal Democratic Party swept to power in December on a campaign to take unprecedented economic stimulus measures to end 15 years of deflation.
Alert to signs of a slowing global economy, Group of 20 finance chiefs and central bankers on April 19 endorsed Kuroda’s stimulus measures, signaling Japan’s focus on supporting domestic demand was strong enough to allow them to ignore the side-effects on their own economies of a sliding yen.
The yen’s heading for its eighth-straight monthly loss against the dollar, which would be the longest since a nine- month skid ending in January 1996. The policies of Abe and Kuroda have reversed a trend of currency strength that damped Japan’s corporate earnings and entrenched deflationary pressures for consumers. Investors seeking refuge assets amid Europe’s sovereign-debt crisis and a record earthquake in Japan drove the yen to a postwar high of 75.35 per dollar in October 2011.
The weaker yen helped Mazda, Japan’s fifth-largest car company, post a profit of 34 billion yen for the fiscal year that ended March 31, compared with a loss of 107.7 billion yen the previous year.
A one-yen change against the dollar, euro, Canadian dollar and Australian dollar has a 9.1% impact on Mazda’s operating profit, according to estimates of Bank of America Corp. based on Mazda’s own forecast for the current fiscal year. That compares with 4.7% at Fuji Heavy Industries Ltd., which makes Subaru cars, and 3.1% at Toyota.
Kuroda said after his first policy meeting that it’s natural for a currency to weaken in response to monetary stimulus, and the BOJ will continue to ease until price growth is sustainable.
The yen will be at 104 per dollar at year-end, according to the median of 55 economist estimates compiled by Bloomberg. Of those polled, 41 saw the currency at 100 yen per dollar or weaker.