By Monami Yui - Dec 24, 2012 8:38 AM GMT+0400
The currency fell toward a 20-month low against the dollar even after data showed that futures traders trimmed bearish bets on the yen from a five-year high. The greenback remained stronger versus the euro amid concern U.S. lawmakers will fail to avert the so-called fiscal cliff of tax increases and spending cuts, supporting demand for haven assets.
The yen declined versus its peers after incoming Japanese prime minister Shinzo Abe said he will consider changing the law governing the central bank unless it boosts its inflation target to 2 percent next month.
“We do expect the yen to weaken over time,” Todd Elmer, head of Group of 10 foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, said in an interview with Bloomberg Television. “In the medium term we should be looking for a move well into the 85 to 90 region if not higher.”
The yen fell 0.1 percent to 84.34 per dollar at 12:29 p.m. in Singapore from the close in New York on Dec. 21. It touched 84.62 on Dec. 19, the weakest since April 12, 2011. The Japanese currency slid 0.1 percent to 111.17 per euro. The dollar added 0.1 percent to $1.3180 per euro, after gaining 0.4 percent on Dec. 21.
Markets in Japan are shut for a public holiday today.
Abe said on Fuji Television yesterday that he will consider revising the central bank law if theBank of Japan (8301) fails to increase its inflation target from 1 percent at its January meeting. He is poised to become prime minister after his Liberal Democratic Party’s coalition secured a majority in elections on Dec. 16.
Abe has called on the BOJ to pursue unlimited easing to end deflation and revive growth. BOJ Governor Masaaki Shirakawa, who steps down in April, and his board last week refrained from doubling the central bank’s 1 percent inflation target, while expanding its asset-purchase program by 10 trillion yen ($118 billion) to 76 trillion yen.
Yen Performance
Japan’s currency has tumbled 12 percent this year, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has weakened 2.8 percent and the euro has dropped 1 percent.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain was 89,163 on Dec. 18, figures from the Washington-based Commodity Futures Trading Commission showed. The so-called net shorts were at 94,401 a week earlier, the most since July 2007.
“Some of the recent enthusiasm for yen weakness is probably a bit overplayed,” said Citi’s Elmer. “This is the one stretched position in the market. I think the market may be leaning a bit too heavily on the Bank of Japan to do the heavy lifting in terms of yen weakness.”
Boehner’s Failure
In Washington, political leaders are debating how to avoid the fiscal cliff: more than $600 billion in automatic tax increases and spending cuts that will take effect in January unless Congress acts.
House Republican leaders canceled a vote on Speaker John Boehner’s plan to allow higher tax rates for annual income above $1 million last week, sending stocks prices lower. Boehner, anOhio Republican, said in a statement on Dec. 20 that his tax measure -- which he called “Plan B” -- “did not have sufficient support from our members to pass.”
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said in a Twitter post yesterday that the fiscal cliff has more than a 50 percent probability.
Dollar Index
The Standard & Poor’s 500 Index of U.S. shares sank 0.9 percent on Dec. 21, while the MSCI World Index lost 0.8 percent. The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed at 79.604 today, following a 0.5 percent advance on Dec. 21.
“Most people had made the assumption that the fiscal-cliff discussions would have been successful,” said Robert Rennie, the chief currency strategist at Westpac Banking Corp. in Sydney. “Boehner’s failure to get enough votes for the ‘Plan B’ in the House certainly was a shock to the financial markets. If that story continues, it will continue to hit risk markets and support demand for the U.S. dollar.”
Strategists are raising won forecasts at a faster pace than any other currency on bets South Korea’s new president will tolerate appreciation driven by capital inflows and an economic recovery.
Won Upgrades
Analysts have bolstered their median predictions for the end of 2013 by 3.3 percent since Sept. 30, the most among 65 global currency pairs tracked by Bloomberg. The won, which has advanced 7.2 percent versus the dollar this year, will strengthen an additional 2.9 percent in 12 months to its highest level since August 2008, a Bloomberg survey shows.
Park Geun Hye, who takes office in February after winning election on Dec. 19, has called for curbing the dominance of conglomerates such as Samsung Electronics Co. and Hyundai Motor Co.
The won traded unchanged at 1,074.35 per dollar today.
“The new government may be a little more tolerant of won gains,” said Eric Stein, a Boston-based portfolio manager at Eaton Vance Management, which oversees $198 billion including won-denominated assets. “The won remains an attractive currency for us to invest in as it’s still undervalued vis-a-vis the dollar, the euro and the yen.”
To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
