By Monami Yui & Hiroko Komiya - Dec 17, 2012 6:20 AM GMT+0400
Japanese yen banknotes of various denominations are arranged for a photograph in Kawasaki, Kanagawa Prefecture, Japan. Photographer: Akio Kon/Bloomberg
The yen fell to its weakest level since April 2011 versus the dollar after Shinzo Abe’s Liberal Democratic Party swept into power in Japanese elections yesterday, giving him a mandate to act on pledges of expanded fiscal and monetary stimulus.
The yen tumbled to an almost nine-month low against the euro after Abe’s LDP won 294 seats in the 480-member lower house of parliament, while Prime Minister Yoshihiko Noda’sDemocratic Party of Japan lost three-fourths of its lawmakers, according to public broadcaster NHK. Japan’s stocks rose and government bonds slid. The dollar was supported as uncertainty over U.S. budget negotiations boosted demand for the relative safety of the world’s reserve currency.
Japanese yen banknotes of various denominations are arranged for a photograph in Kawasaki, Kanagawa Prefecture, Japan. Photographer: Akio Kon/Bloomberg
The election results mean “the monetary policy which Abe has been advocating will become a real possibility,” said Yuji Saito, director of the foreign-exchange department in Tokyo at Credit Agricole SA. (ACA) “The market may try to weaken the yen beyond the psychological level of 85” per dollar, he said.
The yen declined to as low as 84.48 per dollar, the weakest since April 12, 2011. It was at 83.99 as of 11:12 a.m. in Tokyo, 0.6 percent below the close in New York on Dec. 14. Japan’s currency fell 0.6 percent to 110.52 per euro, after touching 111.32, the weakest since March 21. The dollar was little changed at $1.3159 per euro.
Japan’s Nikkei 225 Stock Average (NKY) jumped 1.6 percent to 9,888.71 The nation’s 10-year bonds declined, pushing yields on the benchmark 10-year note up by 1 basis point, or 0.01 percentage point, to 0.735 percent.
Easing Call
Abe has called for a doubling of the Bank of Japan’s inflation goal to 2 percent and unlimited easing to revive growth. The central bank, which last month refrained from expanding its 66 trillion-yen ($786 billion) asset-purchase program, is scheduled to hold a policy meeting on Dec. 19-20. Governor Masaaki Shirakawa, criticized by politicians for his perceived failure to reverse more than a decade of deflation, ends his five-year term on April 8.
LDP partner New Komeito won 31 seats, giving the coalition a two-thirds majority that would enable it to override most decisions by the upper house, where the DPJ is the largest party.
Japan’s currency has lost 5.6 percent in the past month, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 2.1 percent, while the euro gained 1.5 percent. The Nikkei 225 rallied more than 9 percent over the same period.
Recovery Expectations
“Even if monetary easing expectations don’t bring about further weakness in the yen, higher stock prices on the back of hope for an economic recovery may push the currency lower,” Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo, Japan’s second-biggest brokerage, wrote in a note to clients today.
Futures traders increased bets to the most since July 2007 that the yen will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.
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 -- so-called net shorts -- was 94,401 on Dec. 11, compared with net shorts of 90,326 a week earlier.
The greenback rose against Australia’s dollar and other higher-yielding currencies as U.S. budget negotiations continued.
As part of a deal with President Barack Obama to cut deficit, House Speaker John Boehneroffered to raise income tax rates on households earning more than $1 million a year in exchange for containing federal entitlement programs, according to two people familiar with the talks.
More than $600 billion in tax increases and spending cuts, known as the fiscal cliff, will take effect from January unless Congress averts them, a scenario that threatens to throw the world’s biggest economy back into recession.
The U.S. currency added 0.2 percent to $1.0544 per Australian dollar.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
