The dollar remained lower against the yen after a report showed employment growth was more than forecast last month while the jobless rate unexpectedly increased, spurring speculation the Federal Reserve will maintain its stimulus programs that risk devaluing the currency.
The U.S. currency strengthened versus the 17-nation euro as employers in the U.S. added 175,000 jobs in May, according to the Labor Department. That compares with the median forecast in a Bloomberg survey of 163,000. The unemployment rate rose to 7.6% versus a forecast for 7.5%. Economists cut their estimates for how much the Federal Reserve will reduce the amount of its monthly asset purchases, a Bloomberg survey shows. The yen advanced, extending its biggest weekly gain versus the dollar in five years, after Japanese Finance Minister Taro Aso said he had no immediate intention to weaken the currency.
“You’re kind of in no-man’s-land between 165,000 and 200,000” jobs added,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., said in New York, said before the report. “I don’t think that changes anything long-term on the barometer at the Fed. I don’t think they would say this is big enough or sustained enough for them to start thinking about tapering.”
The dollar fell 0.8% to 96.18 yen at 8:49 a.m. New York time. The greenback rose 0.2% to $1.3226 per euro. The yen added 0.8% to 127.44 per euro.
The dollar dropped versus the euro on May 3 after as a report showing the U.S. added more jobs than forecast in April and the jobless rate fell to a four-year low 7.5% failed to deter investor expectations the Fed would sustain monetary stimulus.
JPMorgan Chase & Co.’s G-7 Volatility Index, based on currency option premiums, touched 10.62%, the highest level since June 2012.
The yen touched 95.99 per dollar today, the strongest since April 4. Japan hasn’t sold its currency to weaken it since 2011, when it reached a postwar record of 75.35. A stronger currency hurts the overseas competitiveness of domestic companies.
“We are carefully watching but we don’t have any immediate intention of taking any action, such as intervention,” Aso told reporters in Tokyo.
The Bank of Japan’s stimulus plan announced in April involves monthly purchases of more than 7 trillion yen in Japanese government bonds. The yen slumped more than 20% against the dollar from the middle of November through May amid expectations of expanded monetary and fiscal stimulus under Prime Minister Shinzo Abe.
Japan’s shares tumbled and the yen rallied yesterday after Abe said a legislative campaign to loosen rules on businesses, the “third arrow” of his revival plan, won’t begin for months.
The Government Pension Investment Fund said today it will cut its allocation to Japanese bonds to 60% from 67%. Japan’s Ministry of Health, Labour and Welfare said the GPIF, the world’s biggest manager of retirement savings, will increase its allocation of domestic stocks to 12% from 11%, according to a statement from the health ministry.
The fund will increase its allocation of foreign stocks to 12% from 9% and for foreign bonds to 11% from 8%.
Futures traders increased bets the yen will weaken against the dollar to the most since July 2007. The difference in the number of wagers by hedge funds and other large speculators on a decline in Japan’s currency compared with those on a gain, known as net shorts, was 99,769 contracts on May 28, versus 95,186 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.
“We’re seeing large unwinding of carry trades and violent moves in dollar-yen,” said Kikuko Takeda, a senior analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s been both strong and weak U.S. data so it’s hard to take a one-sided view of the U.S. economy or Fed policy.” A carry trade involves borrowing in low-interest-rate currencies to buy higher-yielding assets.
Deutsche Bank AG’s G10 FX Carry Basket index fell 2.8% this week, erasing this year’s advance.
The yen has surged 4.7% in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 2.2% and the dollar climbed 0.7%.