Publications
Partners
Tokyo - The yen headed for its worst week since 1999 on speculation Prime Minister Shinzo Abe’s stimulus plan will weaken the currency and as better-than-expected Chinese economic data sapped demand for havens.
The Japanese currency has declined 4.9% against the greenback this week, the worst performer among the 16 major currencies tracked by Bloomberg. Its one-month historical volatility rose to its highest since December 2008 on Thursday. The South Korean won rose after China reported economic growth and industrial production that beat estimates.
“Policy expectations, including those from the Bank of Japan later this month, are driving the yen’s decline,” said Shusuke Yamada, chief Japan currency strategist at Bank of America Merrill Lynch in Tokyo. “A retreat in extreme risk aversion is underpinning stocks and helping the yen to weaken.”
The yen tumbled 0.3% to ¥105.68/$ as of 08:00. The currency earlier dropped to as low as ¥106.32, its weakest since June 24. Against the euro, it sank 0.3% to ¥117.53, bringing its weekly decline to 5.5%.
Signs that policy makers from Tokyo to London would respond with stimulus to prevent a Brexit-driven slowdown pushed the yen down against all of its 31 major peers in the past week.
Declines accelerated after Abe increased his majority in last weekend’s upper house election, winning a fresh mandate to put life into efforts to boost consumer prices and economic output.
Currency Level Daily Move Weekly Move Most Since Yen ¥105.70 -0.3% -4.9% February 19, 1999 Pound $1.3406 +0.4% +3.5% May 22, 2009 Kiwi 71.47 Cents -0.7% -2.2% January 8, 2016
The prospect of stimulus to speed up the fight against deflation sapped demand for haven assets this week. Appetite for higher-yielding investments ramped up as the Bank of England’s first policy decision since Brexit saw officials signal more stimulus in August, even as they refrained from an anticipated rate cut.
“Markets are running ahead on expectations and the price action is nothing more than people paring back the excessive moves” after the UK voted last month to leave the European Union, Bank of America Merrill Lynch’s Yamada said.
China’s gross domestic produce rose 6.7% in the second quarter from a year earlier, compared with a projection of 6.6% by economists Bloomberg surveyed and in line with the government’s growth target of at least 6.5% for the full year. Industrial output and retail data for June also beat estimates.
South Korea’s won added 0.4% to 1 133.27 per dollar. Australia’s dollar was little changed at 76.25 US cents after strengthening as much as 0.6% earlier.
The yen pared declines and the Australian dollar gave up its earlier gains on profit-taking as recent moves have been excessive, said Roy Teo, a senior currency strategist at ABN Amro Bank NV, in Singapore. While the unwinding of speculative bullish yen positions is set to keep the currency vulnerable, Japan’s life insurers and companies are also using the yen’s weakness as an opportunity to hedge their foreign-currency earnings, he said.
“I would expect these two forces to continue to play at least until we get more clarity in terms of the fiscal announcement or the BOJ announcement,” Teo said.
Easing speculation
The kiwi extended its decline to a third day on speculation of more monetary easing after the Reserve Bank of New Zealand on Thursday said it would announce an updated economic assessment next week. It fell 0.7% to 71.47c.
Swaps traders are pricing in 70% odds of a a rate reduction by the RBNZ in August, compared with 39% at the start of the week.
“The New Zealand dollar has underperformed most currencies over the past 24 hours following the surprising inclusion by the RBNZ of an ‘economic assessment’,” a few weeks before its August monetary policy meeting, said Imre Speizer, a markets strategist at Westpac Banking in Auckland. “Markets have interpreted this as the RBNZ paving the way for an August rate cut.”
