Yen Drops to Near 3-Year Low on BOJ Bets; Pound Slides

By Anchalee Worrachate & Candice Zachariahs - Feb 25, 2013 12:31 PM GMT+0400

The yen fell to the weakest level since May 2010 against the dollar as Japan’s government narrowed down candidates to run the central bank and pursue the prime minister’s plan for expanded monetary stimulus.

The currency declined against all its 16 major counterparts after an official said Prime Minister Shinzo Abe is likely to nominate Asian Development Bank President Haruhiko Kuroda for Bank of Japan (8301) governor. The pound dropped for a second day against the euro after Moody’s Investors Service cut the U.K.’s credit rating. Australia’s dollar fell after a gauge of Chinese manufacturing came in below economists’ estimates.

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Haruhiko Kuroda, president of the Asian Development Bank (ADB). Photographer: Kiyoshi Ota/Bloomberg

“The market seems to have formed an opinion that Kuroda is a dove and if he indeed becomes the new BOJ governor, he would be willing to do much more to support growth,” saidGeoffrey Yu, a senior currency strategist at UBS AG in London. “The yen is weakening on speculation there will be more policy easing.”

The yen weakened 0.8 percent to 94.12 per dollar as of 8:26 a.m. in London after sliding to 94.77, the weakest level since May 5, 2010. Japan’s currency depreciated 1 percent to 124.50 per euro. The euro rose 0.3 percent to $1.3227.

The yen has tumbled 6.9 percent this year, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The pound has the second biggest loss, sliding 5.8 percent.

Abe is likely to choose Kikuo Iwata, an academic who has advocated increasing Japan’s monetary base, and Hiroshi Nakaso, a senior BOJ official, as deputy governors, according to a government official with knowledge of the discussions who asked not to be named as the talks are private. Japanese media reported on the nominations earlier.

Reshape BOJ

The prime minister is set to reshape the leadership of the BOJ that has adopted his 2 percent inflation target and plans to begin open-ended asset purchases next year. Current Governor Masaaki Shirakawa and two deputies will step aside on March 19.

Japan’s central bank has “really substantial room” for further loosening and additional measures could be justified this year, Kuroda said in a Feb. 11 interview. Former BOJ Deputy Governor Kazumasa Iwata and Kuroda were seen as leading candidates to head the bank, the Mainichi newspaper reported last week without citing anyone.

“While it is well known that Kazumasa Iwata is the most yen-negative governor candidate, a combination of Governor candidate Haruhiko Kuroda and Deputy Governor candidate Kikuo Iwata would be just as yen negative,” Citigroup Inc. analysts wrote in a report dated Feb. 22.

Pound Falls

The pound slid the weakest since July 2010 versus the dollar after Moody’s cut the U.K.’s rating by one level to Aa1 on Feb. 22, citing weakness in the nation’s growth outlook and challenges to the government’s fiscal consolidation program.

“We’ve been expecting the U.K. to get downgraded this year,” Michael Amey, a money managerat Pacific Investment Management Co. in London, wrote in an e-mailed response to questions. While the impact on gilts will be limited, the pound’s decline “is a symptom of the challenge of deleveraging the U.K. economy,” he wrote.

The pound fell 0.3 percent to 87.29 pence per euro after depreciating to 87.75, the weakest since October 2011. Sterling dropped 0.1 percent to $1.5152 after slipping to $1.5073, the lowest since July 13, 2010.

The Australian dollar declined against all except one of its 16 major peers after an industry gauge indicated China’s manufacturing may expand at a slower pace this month. China is Australia’s biggest trading partner.

The preliminary reading of a Purchasing Managers’ Index was at 50.4 in February, HSBC Holdings Plc and Markit Economics said. That compares with the 52.3 final reading for January. A number above 50 indicates expansion.

“It’s a surprisingly softer number, suggesting that the Chinese economy is pulling back a little,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “It has contributed to some softness in the Australian dollar.”

The so-called Aussie fell 0.3 percent to $1.0289 after dropping to $1.0222 on Feb. 21, the lowest since Oct. 15.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; 

Candice Zachariahs in Sydney at czachariahs2@bloomberg.net;

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net