Dollar rises to five-year high against yen

BOJ Meeting

The yen has slumped 1.2% since Dec. 13, extending its decline during its eight-week losing streak to 6.7%. The U.S. economy will expand 2.6% in 2014, while Japan’s gross domestic product will grow 1.6%, according to Bloomberg News surveys of economists.

BOJ policy makers said after their two-day meeting they will maintain stimulus until annual inflation is stable at 2%. The BOJ will examine the risks and make policy adjustments as needed, according to a statement. Most economists surveyed by Bloomberg anticipate the central bank will boost stimulus after the national sales tax is raised in April.

“What you’ve got to recognize is that the justification for tapering is the assumption that the macroeconomic fundamentals in the U.S. are improving,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. The dollar “looks like it’s still got a bit further to go” against the yen, he said.

Turkey’s lira dropped as much as 1.2% to 2.0982 per dollar, the weakest since at least 1981. The currency also dropped to a record 2.8636 per euro.

Political Risk

“Political risk has increased considerably,” said Melih Onder, chairman of Logos Portfoy Yonetimi AS, which manages the equivalent of $90 million. “It took a few days for foreign investors to digest what has happened. This selloff could continue for as long as 10 days.”

The government dismissed 14 department chiefs at the national police today, NTV television reported, in addition to some 50 yesterday, according to a Bloomberg HT report. The dismissals came after police detained dozens of people, including the head of a state bank and the sons of three cabinet ministers, in an inquiry into graft

Most Asian currencies weakened on speculation inflows will slow as the Fed begins curbing stimulus that has fueled demand for emerging-market assets.

Malaysia’s ringgit dropped 0.5% to 3.2880 per dollar, the Thai baht fell 0.5% to 32.63 per dollar, while Indonesia’s rupiah was little changed after dropping to a five-year low of 12,255.

Economic Pace

U.S. gross domestic product rose at a 4.1% annual rate in the third quarter, the fastest pace since the final three months of 2011, according to a Commerce Department report today. Data due Dec. 23 will show personal income and spending both increased in November, Bloomberg surveys show.

The Fed said after its Dec. 17-18 meeting that it would trim monthly asset purchases to $75 billion from $85 billion. At the same time it reinforced an assurance that interest-rate increases are far off by saying the benchmark rate is likely to stay low “well past the time that the unemployment rate declines below 6.5%.”

The central bank has kept the target for the federal-funds rate at a range of zero to 0.25% since December 2008.

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