Yen peaks amid BoJ stimulus

The yen (CME:J6M14) rose the most in almost a month versus the euro (CME:E6M14) on speculation Bank of Japan stimulus is boosting the economy while the European Central Bank will expand currency-debasing measures to revive growth.

Japan’s currency strengthened against most of its 16 major peers, with analysts surveyed by Bloomberg News predicting the BoJ will keep stimulus at existing levels when policy makers meet June 12-13. Its biggest gains came versus the euro as data pointed to subdued inflation and production in the 18-nation currency bloc. Yuan forwards had the biggest three-day gain since January 2012 as China’s central bank increased the currency’s fixing after data showed a doubling in the trade surplus for May.

“The euro-yen cross is an interesting play because euro will probably, on a broad basis, slide lower, especially given the aggressive easing policy put in place by the ECB,” Mark McCormick, a macro strategist at Credit Agricole SA in New York, said in a phone interview. “What really matters for the yen crosses at this stage is really the interest-rate environment in the other countries. The policy play is really important.”

Japan’s currency strengthened 0.6% to 138.54 per euro at 8:44 a.m. New York time, the biggest advance since May 8 on a closing basis. The yen appreciated 0.3% to 102.26 per dollar. The 18-nation currency weakened 0.3% to $1.3548, after dropping to $1.3503 on June 5, the lowest since February 6.
 

Yuan Strength
The People’s Bank of China raised the reference rate by 0.06% to 6.1451 per dollar, the strongest since March 26.

Exports rose more than expected in May, lifting the excess in the trade account to $35.9 billion from $18.4 billion in April, a report showed on June 8. The yuan (CME:QTN14) lost 2.8% this year in Asia’s worst performance.

BoJ Governor Haruhiko Kuroda is scheduled to hold a press conference after the BoJ’s next policy decision on June 13 amid speculation his policies are leading to an improvement in financial markets and the economy. The central bank has been buying about ¥7 trillion ($68.4 billion) of government bonds a month since April 2013. All 33 economists surveyed by Bloomberg News forecast the central bank will keep policy unchanged at the meeting.

“The economic data has been mixed but clearly not to the level that would warrant further action at this month’s meeting” of the BOJ, said Peter Rosenstreich, chief foreign-exchange analyst at Swissquote Bank SA in Geneva. “Cyclical stimulus seems to be working while, structurally, sentiment has shifted. This might indicate less artificial support from the BOJ, and that should underpin the yen.”
 

Euro Weakness
The euro weakened after a report showed a slower pace of inflation in the Netherlands than economists forecast in May, bolstering speculation that the ECB will persist with measures to boost the economy. Separate data showed a drop in French industrial production in April from a year ago.

ECB policy makers led by President Mario Draghi last week cut the deposit rate to minus 0.1%, lowered the main refinancing rate to a record 0.15% and announced measures including targeted long-term loans.

“The most important thing from the foreign-exchange point of view, it’s the signal that the ECB will run around with very low rates for a long time,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt.

The euro declined 1.9% this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen has gained 3% while the dollar (NYBOT:DXM14) is down 0.3%.

In the U.S., retail sales increased 0.6% in May following a 0.1% advance the previous month, the Commerce Department will say June 12, according to the median forecast of economists surveyed by Bloomberg.

“We are going to see a stronger second half” for U.S. economic growth, Federal Reserve Bank of Boston President Eric Rosengren said yesterday.

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