By Masaki Kondo - Dec 27, 2012 6:46 AM GMT+0400
The yen slid to a 16-month low against the euro before data tomorrow that may show a decline in Japan’s consumer prices, fanning speculation Prime Minister Shinzo Abe will push the central bank to boost cash infusions.
The currency touched the lowest since September 2010 versus the dollar after Abe said in a media briefing yesterday that “bold’ monetary policy is one of the three pillars of his economic measures. Implied volatility on U.S. stocks jumped to a five-month high yesterday, supporting demand for safer assets.
The Japanese currency touched 113.48 per euro, the weakest since Aug. 4, 2011, before trading at 113.37 as of 9:12 a.m. Photographer: Akio Kon/Bloomberg
‘‘The birth of the Abe administration is spurring expectations in markets that deflation will end,’’ said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. ‘‘Markets are anticipating that the government will clarify its willingness to bring the yen down.’’
The Japanese currency touched 113.58 per euro, the weakest since Aug. 4, 2011, before trading at 113.54 as of 11:42 a.m. inTokyo, down 0.3 percent from the close yesterday. It was 0.2 percent lower at 85.80 per dollar after touching 85.84, a level unseen since Sept. 17, 2010. The euro was little changed at $1.3231.
Government data may show tomorrow that Japan’s consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, according to the median estimate of economists surveyed by Bloomberg News. That compares with the Bank of Japan (8301)’s target of 1 percent inflation.
Surest Bets
Further depreciation of the yen versus the U.S. dollar is one of the surest bets going into the new year, according to John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC. The yen will weaken to 90 per dollar before a resumption in risk aversion prompts investors to return to traditional refuge currencies, he said.
The Japanese currency has tumbled 14 percent this year, the biggest drop among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is the second-worst performer with a 2.9 percent slide, while the euro has lost 0.6 percent.
The yen’s 14-day relative strength index fell to 20 against the dollar and 21 versus the euro. Levels below 30 indicate an asset’s price decline is too rapid and may be due for a rebound.
President Barack Obama and U.S. Congress return to Washington today to continue negotiations over the so-called fiscal cliff, or more than $600 billion in automatic tax increases and spending cuts that take effect next month. Treasury Secretary Timothy F. Geithner said there’s ‘‘significant uncertainty” around tax and spending policies, according to a letter he sent to congressional leaders yesterday.
Risk Sentiment
“Uncertainty and concerns about the fiscal cliff are starting to weigh on risk markets,” said Peter Dragicevich, a currency economist in Sydney at Commonwealth bank of Australia. (CBA) “A lot will depend on what the U.S. politicians do. If there’s no sign they will be able to reach an agreement quickly, and if this uncertainty continues to drag on into the middle of next month, we would expect the U.S. dollar to lift broadly.”
The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), climbed 4.8 percent to 19.48 yesterday, the highest close since July 24. The gauge, based on U.S. stock-option prices, reflects expected market volatility and tends to rise during a period of financial stress, according to the CBOE’s website.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
