The yen rose for the first time in four days against the dollar amid speculation further policy measures may be needed to weaken the currency after Prime Minister Shinzo Abe’s coalition cemented control of parliament.
Japan’s currency (FOREX:USDJPY) climbed against all of 16 major peers after dropping last week before the July 21 poll. The euro rose to the highest level in a month versus the greenback after Portuguese President Anibal Cavaco Silva said the current government will stay in office and he doesn’t want to call early elections. Australia’s dollar climbed after officials in China moved to scrap a rule that had constrained bank lending. Indonesia’s rupiah snapped a record losing streak.
“It boils down to your faith in Abenomics and whether or not you think he’s going to be able to push his agenda further, and more importantly whether that’s really good for the yen,” Gerry Celaya, a senior currency strategist at Aberdeen, Scotland-based Redtower Asset Management, said in a phone interview. “We’ve priced in a lot and we need something to deliver here. In our view, it’s going to have to come from the Bank of Japan.”
Japan’s currency strengthened 1.2% to 99.43 per dollar at 10:42 a.m. New York time and gained as much as 1.4%, the biggest intraday jump since July 11. The yen rose 0.8% to 131.21 per euro. The euro appreciated 0.6% to $1.3217 and touched $1.3218, the strongest since June 21.
The yen has weakened 10% this year, the biggest decline among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 4.9% and the euro advanced 4.7%.
The dollar extended losses versus the euro and yen after sales of previously owned homes in the U.S. unexpectedly fell in June. They dropped 1.2% to a 5.08 million annualized rate, the National Association of Realtors reported today. Economists in a Bloomberg survey called for a 5.26 million pace.
Australia’s dollar strengthened after the People’s Bank of China said July 19 it was ending a floor on borrowing costs previously set at 30% below the benchmark rate. China is Australia’s biggest trading partner.
The Aussie climbed 0.9% to 92.52 U.S. cents.
The rupiah advanced on speculation global funds bought the nation’s debt to tap higher yields.
Overseas investors added 1.24 trillion rupiah ($122 million) to their local-currency sovereign note holdings this month through July 15, following a 19.98 trillion rupiah outflow in June, finance ministry data show. The five-year yield reached 7.68% on July 16, the highest since March 2011.
The Indonesian currency rose 0.1% to 10,066 per dollar following an 11-day losing streak that was the longest in data compiled by Bloomberg going back to 1991, according to prices from local banks.
The yen’s strength gives scope to sell the currency because reforms will ultimately put it under pressure, Morgan Stanley strategists including Hans Redeker wrote in note to clients today. Strategists at Societe Generale SA also wrote in a client note that these levels represent an opportunity to sell the yen against the greenback.
While Japan’s ruling party failed to win an independent majority in upper-house elections, Abe’s Liberal Democratic Party and its New Komeito ally now have 135 of the 242 seats in the upper house, according to estimates by state broadcaster NHK. The LDP has controlled the lower house since elections in December.
Abe said today he’ll focus on stemming deflation. Decisions loom on issues including whether to cut corporate taxes, reduce labor regulations, make it easier to consolidate agricultural land and allow greater access to overseas goods and services.
“The key will be the policies announced and implemented by the government,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “If the government is true to its word, and implements the reforms, then that will remain a yen negative.”
BOJ policy makers at a meeting on July 10 stuck with their pledge to expand the monetary base by 60 trillion yen ($605 billion) to 70 trillion yen per year in their effort to stem deflation and stoke economic growth.
Japan’s currency will weaken to 105 per dollar in six months, Hardman predicted.
The euro rose versus rose versus the dollar amid optimism Portugal’s government will stay in office until 2015, giving the nation time to complete its European-Union led aid deal. Portuguese government bonds rose even as the political parties failed to agree on measures necessary to complete the bailout plan after six days of talks.
“The government has the support of an unequivocal majority in parliament,” Cavaco Silva said in a speech in Lisbon yesterday. The government will ask lawmakers to approve a confidence motion, said the president, who has the power to dissolve parliament.
Portuguese 10-year bond yields fell as much as 49 basis points, or 0.49 percentage point, to 6.31%.
Trading in over-the-counter foreign-exchange options totaled $9 billion, compared with $29 billion on July 19, 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 $2.4 billion, the largest share of trades at 27%. Aussie-dollar options totaled $2 billion, or 23%, the second-largest share.
Dollar-yen options trading was 50% less than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Aussie-dollar options trading was 41% more than average.