Yen rallies most in 3 years as BOJ refrains from added stimulus

The yen rose the most in three years against the dollar as the Bank of Japan refrained from adding more stimulus measures that tend to weaken a currency.

Japan’s currency snapped a two-day decline as BOJ Governor Haruhiko Kuroda held back from extending the maturity of loans to banks as part of its monetary stimulus that pushed the yen down almost 10% this year. The currency extended gains versus the dollar as Treasuries rallied even after demand slumped at a Treasury auction of three-year notes. Australia’s dollar dropped to an almost three-year low after data showed home-loan approvals expanded by less than economists forecast.

“Markets hoped we’d see a little more supportive rhetoric in terms of the policy backdrop from Kuroda,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, by phone from London. “Whilst he gave us some warm words, he didn’t really provide us any impetus to maintaining a weaker yen bias.”

The yen strengthened 2.7% to 96.11 per dollar at 3:23 p.m. New York time, after rising as much as 3.2%, the most on a closing basis since May 2010. It gained 2.3% to 127.90 per euro. Europe’s shared currency added 0.4% to $1.3289, touching the strongest level since Feb. 19.

Stocks, Swings

One-year implied volatility for the dollar-yen climbed to 12.8%, its highest level since September 2011. The Topix index of Japanese stocks decreased 1%, while the Standard & Poor’s 500 Index of stocks declined 0.7%.

Treasuries rallied, with the 10-year note yield falling two basis points, or 0.02 percentage point, to 2.19% even after the bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.95, the lowest since December 2010.

“The three-year note auction, I guess it was pretty weak,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC, by phone from New York.

Japan’s Nikkei newspaper reported the Japanese FSA plans to adopt a “bail-in” program to prevent taxpayer-funded rescues of failing banks.

“Maybe it took just a little spark to set off the move and it was the lack of liquidity,” said Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit by phone from Stamford, Connecticut. “Dollar longs are quite large and this position clear-out still has a long way to go.” A long position is a bet that an asset will increase in value.

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