Edinburgh - The yen resumed its slide against the dollar, set for its biggest weekly drop since 1999, as investors awaited the details of Japanese Prime Minister Shinzo Abe’s recharged stimulus following his election victory.
The currency slipped against all of its 16 major counterparts, falling after Ben S. Bernanke, the former chairperson of the Federal Reserve who met officials in Tokyo this week, was reported to have floated the idea of the nation issuing perpetual bonds during earlier discussions in Washington.
Officials on Wednesday denied a Sankei newspaper report that they’re considering the policy known as helicopter money - direct financing of government spending by the central bank.
The prospect of stimulus to speed up the fight against deflation sapped demand for haven assets this week, boosting stocks and weakening the yen. Demand for higher-yielding investments was also boosted as the Bank of England’s (BoE) first policy decision since Brexit saw officials signal more stimulus in August, even as they refrained from an anticipated rate cut.
“The expectations of a two-pronged stimulus approach - both fiscal and monetary - have definitely put the yen under pressure,” said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London. “Today everyone is focused on the BOE.”
Yen slides
The yen slid 1% to ¥105.52/$ as of 13:30 time, pushing its drop since the end of last week to 4.8%. It depreciated earlier to ¥105.94/$, the weakest level since June 24 - the day Britain’s decision to quit the European Union was announced. Japan’s currency slid for a fourth day versus the euro, dropping 1.6% to 117.74.
The pound rose 1.8% to $1.3378, having earlier touched $1.3475, the highest this month.
Signs that policy makers from Tokyo to London would respond with stimulus to prevent a Brexit-driven slowdown pushed the yen down against all of its 31 major peers in the past week. Declines accelerated after Abe increased his majority in last weekend’s upper house election, winning a fresh mandate to put new life into efforts to boost consumer prices and economic output.
The yen headed lower after the comments from Etsuro Honda, who has emerged as a matchmaker for Abe in corralling foreign economic experts to offer policy guidance, relaying prior discussions with Bernanke.
The news was a “trigger for the yen’s drop, coming on top of mounting expectations for Japan to unveil a massive stimulus and the BOJ to expand stimulus,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management.
“There were also stops above ¥105/$ so they were obviously triggered,” referring to automatic sell orders that investors use to limit losses.