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Singapore - The yen headed for its biggest gain since the Brexit result as traders scaled back expectations for a boost to fiscal stimulus.
Japan’s currency rose against all of its 16 major counterparts after Finance Minister Taro Aso said the government has yet to decide on the size of a fiscal-stimulus package. The Nikkei newspaper reported that the plan would include ¥6trn of new spending, though only about ¥2trn of that would be in a supplementary budget to be passed this year.
"There’s some disappointment in the fiscal-stimulus information that’s coming out as the numbers are a lot less than had been rumoured," said Chris Chapman, a London-based trader at Manulife Asset Management (Europe).
"That probably explains the big move in the yen. I think some people are now a bit cautious" about whether Japan will act.
The yen strengthened 1.4% to 104.36 per dollar at 10:20 a.m. in London, set for its biggest gain since June 24. That’s the day Britain announced it had voted to quit the European Union, sending investors scrambling for havens and pushing the Japanese currency to a 2 1/2-year high of 99.02 to the dollar.
The yen is still down about 1% this month after a build-up in speculation that Japan’s authorities would expand monetary and fiscal stimulus. It appreciated 1.2% on Tuesday to 114.99 per euro.
Decisions loom
While futures prices suggest the Federal Reserve will keep borrowing costs on hold on Wednesday, traders will scour its policy statement for any sign officials plan to raise rates later in the year.
Most economists still predict the Bank of Japan will expand easing two days later. A copy of the Japanese government’s draft stimulus plan obtained by Bloomberg called for continued cooperation with the central bank but contained no details on the size or economic effects of the package.
"The market is cautious due to the risk of policy disappointment," said Neil Jones, head of hedge-fund sales at Mizuho Bank in London.
"Expectations for a Fed hike and further Bank of Japan stimulus run high. But the BOJ may do nothing and the Fed may take on a more dovish angle."
