BLBG: Yen Strengthens as BOJ Says It Will End Emergency Bond Buying
By Lukanyo Mnyanda and Ye Xie
Oct. 30 (Bloomberg) -- The yen rose against the dollar and euro after the Bank of Japan said it will stop buying corporate debt at the end of the year, reducing concern that it’s flooding the market with Japan’s currency.
The Swiss franc fell from a three-week high against the euro on speculation the central bank sold its own currency to limit its appreciation and bolster the economic recovery. Canada’s currency fell against the dollar as a government report showed the nation’s economy unexpectedly shrank in August.
“There’s been a degree of yen buying after the BOJ’s decision to end some of its support measures,” said Lee Hardman, a foreign-exchange strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd.
The yen advanced 0.4 percent to 91.09 per dollar at 9:50 a.m. in New York, from 91.41 yesterday. Japan’s currency strengthened 0.5 percent to 134.81 per euro, from 135.51. The dollar was at $1.4799 per euro, compared with $1.4822.
The BOJ decided to end purchases of commercial paper and corporate bonds from lenders as scheduled, while extending unlimited collateral-backed lending through March 31, according to a statement released in Tokyo today. Policy makers kept the benchmark interest rate unchanged at 0.1 percent.
“The BOJ decision to end corporate bond purchases has obviously has had an impact,” said Chris Furness, head of foreign-exchange strategy in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “It shouldn’t have surprised anyone because it’s on schedule, but at the same time I can see that it would have an impact.”
Weaker Franc
The franc depreciated 0.1 percent to 1.5127 versus the euro on speculation the Swiss National Bank intervened to prevent the currency from extending its gain. The franc earlier reached 1.5083, the strongest level since Oct. 5.
“If you look at the move, I’m sure they were in,” said Patrick Liniger, a currency trader at Luzerner Kantonalbank AG in Zurich.
No one from either the Swiss National Bank or the Bank for International Settlements was available for comment when contacted by Bloomberg News.
Canada’s currency declined 1.2 percent to C$1.0795 per U.S. dollar as the government reported that the nation’s gross domestic product fell 0.1 percent in August. Economists expected a 0.1 percent increase, according to the median estimate of 23 analysts in a Bloomberg survey.
The dollar slid 1.2 percent versus the euro in October in its fourth monthly decline, the longest losing streak since December 2004. The yen’s 1.6 percent decline this month versus the dollar reduced the burden on Japanese manufacturers converting the proceeds from exports to their own currency. The yen slid 2.7 percent versus the euro in October.
Dollar Index
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of some of the U.S.’s biggest trading partners, gained 0.3 percent to 76.103 today.
U.S. gross domestic product grew at a 3.5 percent annual pace in the third quarter, after shrinking in the previous four periods, the Commerce Department reported yesterday. The median forecast of 79 economists in a Bloomberg survey was for an expansion of 3.2 percent.
The Institute for Supply Management-Chicago Inc. said its business barometer increased to 54.2 in October, from 46.1 in the previous month. The median forecast of 58 economists in a Bloomberg survey was for an advance to 49. Readings below 50 signal contraction.
Fed View
Investors remained skeptical that the Federal Reserve will increase borrowing costs early next year. Fed funds futures show a 33 percent chance that the central bank will lift its target lending rate at the March meeting from a range of zero to 0.25 percent, compared with a 41 percent likelihood a week earlier.
“Nothing has changed concerning the main reason for dollar weakness, the low yield and the lack of any sign that the Fed might raise rates,” analysts led by Ulrich Leuchtmann at Commerzbank AG in Frankfurt wrote in a client note today. Next week’s Fed policy meeting will probably leave investors waiting “in vain for indications from the Fed that a shift in rates is near.”
China’s currency needs to strengthen in order to reduce global trade imbalances, Harvard economics professor Martin Feldstein wrote in the Financial Times.
Global leaders’ agreement to combat such distortions means they must seek to reduce the U.S.’s $500 billion current-account deficit and China’s $350 billion surplus, he said.
The yuan traded at 6.8275 against the dollar, little changed since Dec. 31.
To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
