Japan says currency manipulation may not be good; really

February 12, 2015 09:37 AM

The yen climbed the most in four weeks versus the dollar after Bank of Japan policy makers were said to regard extra stimulus that tends to debase the currency as counterproductive.

Japanese officials are concerned loose monetary policy will trigger declines in the currency that damage confidence, according to people familiar with the situation. The pound climbed as Bank of England inflation projections signaled it may have to raise interest rates faster than investors anticipated. Sweden’s Riksbank took the opposite approach, unexpectedly cutting its main rate and announcing bond purchases. The krona plunged to the weakest in almost two months versus the euro.

As central banks around the globe seek to boost their economies by lowering interest rates even below zero, foreign- exchange investors are turning more bullish on regimes where monetary policy may stay the same or rates may rise.

“The markets are trading very much in sync with easing or not,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “That’s a major component of the sovereign- divergence trade. This morning is a snapshot example highlighting the longer-term theme.”

The yen appreciated 1% to 119.26 per dollar as of 8:41 a.m. New York time, the biggest gain since Jan. 14. Japan’s currency climbed 0.7% to 135.66 to the euro. The Swedish krona dropped 1.5% to 9.6308 per euro and touched 9.6867, the weakest level since Dec. 16.

Shifting View

The yen climbed after the reported remarks, which indicate a possible shift in thinking on the exchange rate among some officials at the BOJ.

“It was a surprise,” said Geoffrey Yu, a London-based senior currency strategist at UBS Group AG. “Sure there have been BOJ board members with reservations on the pace of yen weakness and of further easing, but with the lack of structural reform I don’t see what the alternatives are. We still target dollar-yen higher. This is an opportunity to get back in.”

The pound also strengthened after the BOE said inflation will breach its target in three years.

Sterling rose 0.9% to $1.5387 and advanced 0.6% to 73.94 pence per euro.

Sweden’s Riksbank lowered its repo rate to minus 0.10% from zero and said policy will “soon” be made “more expansionary” by buying 10 billion kronor in sovereign debt with maturities of one to five years in a program known as quantitative easing.

Currency Aim

“Negative rates give additional reason not to hold SEK,” said John Hardy, Hellerup, Denmark-based head of foreign- exchange strategy at Saxo Bank A/S, the second most-accurate forecaster of the euro-krona exchange rate last year. “Doing a smidgen of QE suggests they have broken the taboo and can crank it up if conditions warrant. They wanted the SEK weaker, they are getting it.”

Australia’s dollar slid as data showed the nation’s unemployment rate climbed to 6.4% in January, the highest since 2002, fueling speculation the central bank will cut rates again as early as next month.

The Reserve Bank of Australia unexpectedly ended a 17-month pause and cut rates on Feb. 3 to support the economy. The probability the central bank will reduce borrowing costs next month climbed to 66%, from 34% at the start of the week, interest-rate swaps show.

The Aussie dropped 0.3% to 76.96¢.

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