Dollar-yen volatility near 3-month low before BOJ, Fed decisions

Yen's bearish trend could accelerate

The expected fluctuation of the dollar against the yen fell toward the lowest level in almost three months as traders awaited policy decisions from the Bank of Japan today and the Federal Reserve next week.

The International Monetary Fund recommended that the BOJ keep its accommodative policy and stand ready to ease further to achieve its 2 percent inflation target. The pound traded near a one-year high against the euro before data forecast to show U.K. unemployment fell to the lowest in 4 1/2 years. Australia’s dollar gained against all its major peers after a report showed consumer price gains quickened more than economists forecast, tempering bets on further interest-rate cuts.

“Dollar-yen is sitting comfortably in the low 104 levels as the market awaits decisions by the BOJ and Fed,” said Kengo Suzuki, a chief currency strategist at Mizuho Securities Co. in Tokyo, a unit of Japan’s third-biggest financial group by market value. “If the BOJ signals they will not hesitate to act to combat economic setbacks ahead of the sales tax increase, that will weaken the yen,” he said, referring to the government’s plan to raise the consumption levy in April.

The dollar’s three-month implied volatility against the yen fell 8 basis points, or 0.08 percentage point, to 8.835 percent as of 11:46 a.m. in Tokyo from yesterday, matching the the lowest level since October.

The greenback was little changed at 104.36 yen and $1.3565 per euro. It has fallen 0.9 percent against the yen this year, the worst start to the year since 2010. The 18-nation euro fetched 141.59 yen from 141.43. The pound was at 82.32 pence against Europe’s single currency from 82.29 yesterday, when it touched 82.15, the strongest since January last year.

The Aussie jumped 0.6 percent to 88.57 U.S. cents after falling as low as 87.57 on Jan. 20, the weakest since July 2010.

BOJ Easing

“It will be important to see whether the convergence to the 2 percent inflation as measured by underlying inflation will take place,” Thomas Helbling, chief of the World Economic Outlook Division at the International Monetary Fund, said in a Bloomberg Television interview today before the BOJ decision. “Otherwise the BOJ needs to stand ready to ease even further. That would be our recommendation.”

The U.S. Fed will reduce its asset-purchase program by $10 billion at each policy meeting, analysts forecast. The Federal Open Market Committee meets on Jan. 28-29.

In the U.K., the jobless rate probably fell to 7.3 percent in the three months to November, matching the level last seen in April 2009, according to the median estimate of economists before the Office for National Statistics in London releases data today.

Aussie CPI

Australia’s trimmed mean gauge of core consumer prices rose 0.9 percent from the previous quarter, the Bureau of Statistics said in Sydney today, compared with the median forecast of 23 economists for a 0.6 percent gain. The consumer price index advanced 0.8 percent from the previous three months, double economists’ forecast for a 0.4 percent increase.

There’s a 24 percent chance the Reserve Bank of Australia will cut its record-low 2.5 percent benchmark rate as of its June meeting, compared to 42 percent odds yesterday, swaps data compiled by Bloomberg show.

“This outcome obviously reduces the chances of another RBA rate cut,” Sean Callow, a Sydney-based currency strategist at Westpac Banking Corp. wrote in a note to clients after the consumer price data. The Aussie may rise as high as 90.80 U.S. cents in coming days if it can finish today’s session above 88.70, he wrote.

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