Yen Falls on BOJ Bets as Tax Rise Looms; Aussie Weakens
The yen weakened versus the euro and dollar as the International Monetary Fund said the global economy was improving and as Asian stocks rallied, damping demand for safer investments.
Japan’s currency weakened versus all of its 16 major counterparts amid speculation the Bank of Japan will boost stimulus as soon as next month to ease the impact of a planned tax increase. The euro rose against the yen as a measure of French manufacturing activity unexpectedly resumed growth in March. The yen declined even as a gauge of Chinese factory output fell this month. A measure of currency volatility dropped to the lowest level since December 2012.
“Risk sentiment is pretty buoyant today and has weathered weak data out of China,” said Greg Gibbs, head of Asia Pacific markets strategy at Royal Bank of Scotland Group Plc in Singapore. “After weak data today, markets aren’t saying ‘let’s sell.’ They’re saying weak data will intensify government efforts to underpin growth.”
The yen weakened 0.3 percent to 141.39 per euro at 9:04 a.m. in London, the biggest decline since March 17. Japan’s currency dropped 0.3 percent to 102.52 per dollar. The euro was little changed at $1.3788 after deprecating to $1.3749 on March 20, the lowest level since March 6.
Deutsche Bank AG’s Currency Volatility Index, based on three-month implied volatility on nine major currency pairs declined seven basis points, or 0.07 percentage point, to 7.06 percent, the lowest level since Dec. 17, 2012.
IMF Managing Director Christine Lagarde said in a speech in Beijing that the world economy “is slowly turning the corner, although growth remains too weak and too unbalanced.”
Deflation is the biggest problem for Japan’s economy and a cause of yen strength, BOJ Deputy Governor Kikuo Iwata said today at a forum on monetary policy. The central bank will adjust monetary policy if its target of 2 percent inflation is deemed impossible to achieve, he told lawmakers on March 6.
Thirty-five percent of 34 economists surveyed predicted the BOJ would expand stimulus as early as next month when the government increases the sales tax to 8 percent from 5 percent, according to the results of a Bloomberg survey conducted from Feb. 26 to March 4.
“Our basic inclination is that dollar-yen is a buy on dips,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “We’re in the camp that thinks more easing would be warranted,” he said about BOJ monetary policy.
The yen has weakened 8.2 percent in the past 12 months, the third worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 0.5 percent and the euro gained 7.5 percent.
The Purchasing Managers’ Index for China’s manufacturing dropped to 48.1 in March, HSBC Holdings Plc and Markit Economics Ltd. said. The preliminary reading compares with a final number of 48.5 in February. Readings below 50 signal contraction.
The euro rose for the first time in three days against the yen as Markit Economics Ltd. said its French factory index based on a survey of purchasing managers climbed to 51.9 from 49.7 in February, the highest since June 2011. Economists predicted a reading of 49.7, according to a Bloomberg survey.
A gauge of manufacturing in the euro area dropped to 53 from 53.2, a separate report from Markit Economics showed.