The yen fell the most in a week against the dollar after a report showed Japan’s economy slowed more than analysts forecast, fueling speculation the central bank will need to boost measures to spur growth.
Japan’s currency dropped against all of its 16 major peers as the second quarter growth data added to the debate on whether the economy is strong enough to sustain a planned increase in sales tax in April. The Bloomberg U.S. Dollar Index rose before U.S. data tomorrow forecast to show retail sales increased for a fourth month, backing the case for the Federal Reserve to reduce stimulus. South Africa’s rand weakened as stocks dropped, damping demand for higher-yielding assets.
“There’s a mixture of yen weakness and the dollar is rebounding,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s some disappointment that the Japanese growth rate was below expectations. There’s a chance the BOJ could move to more aggressive easing in the first half of next year to help offset any drag from the sales tax.”
The yen fell 0.6% to 96.76 per dollar at 8:02 a.m. New York time after appreciating to 95.81 on Aug. 8, the strongest level since June 19. Japan’s currency weakened 0.1% to 128.55 per euro after appreciating to 127.98, the most since June. 27. The dollar advanced 0.4% to $1.3286 per euro.
Japan’s gross domestic product expanded 2.6% from a year earlier, compared with a revised 3.8% increase in the previous three months, the Cabinet Office said. Economists surveyed by Bloomberg had forecast growth of 3.6%. Industrial production fell 3.1% in June from the previous month, the Trade Ministry said.
Traders have reduced bets the yen will weaken, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the currency compared with those on a gain -- so-called net shorts -- was 80,213 on Aug. 6, compared with 82,135 a week earlier.
The yen has slumped 20% in the past 12 months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 11% and the dollar appreciated 1.3%.
The Bloomberg U.S. Dollar Index rose for the first time in seven days amid speculation an improving economy will allow the central bank to pare stimulus later this year.
U.S. retail sales climbed 0.3% in July after rising 0.4% in June, according to a Bloomberg survey before tomorrow’s Commerce Department report. The Fed is buying $85 billion of Treasuries and mortgage debt each month to put downward pressure on interest rates.
Atlanta Fed President Dennis Lockhart will give a speech in that city tomorrow on current economic issues. He told Market News International that “the progress to date is pretty impressive and certainly should be factored into the readiness of the economy to move forward without asset purchases,” according to an article published on Aug. 7.
“The fundamentals remain in place that the U.S. is a better economic story,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “The trend remains higher for the dollar.”
The Bloomberg U.S. Dollar Index rose 0.4% to 1,020.81 after dropping to 1,015.49 on Aug. 8, the lowest level since June 19.
The rand declined for the first time in three days before the release of retail sales data that economists said will add to evidence of a slowdown in Africa’s biggest economy.
South African sales growth slowed to 3% in June from 6.2% in the previous month, according to the median estimate of 12 economists in a Bloomberg survey of economists. Mining output contracted in June while manufacturing production declined, reports showed last week.
The rand fell 0.6% to 9.8806 per dollar after strengthening to 9.6994 on Aug. 9, the most since July 26.