BLBG: Yen Declines Against Euro on Speculation BOJ to Keep Rates Low
By Anna Rascouet and Yasuhiko Seki
Dec. 18 (Bloomberg) -- The yen fell against the euro and the dollar after the Bank of Japan said it won’t tolerate price declines, spurring speculation the central bank will keep interest rates near zero.
The yen fell against all 16 most traded currencies tracked by Bloomberg after the Bank of Japan said the policy board “does not tolerate a year-on-year rate of change in the CPI equal to or below zero percent.” The Swiss franc advanced beyond 1.50 per euro for the first time since March, when the nation’s central bank first sold the currency to weaken it. The euro rose against the dollar as German business confidence increased to the highest level in 17 months.
“The Bank of Japan said that it will maintain an accommodating monetary policy ” said David Deddouche, currency strategist at Societe Generale SA in Paris. “The yen is suffering.”
The yen fell to 129.98 per euro at 11:24 a.m. in London from 129 yesterday in New York. Japan’s currency fell to 90.34 per dollar from 89.96. The euro slid to 1.4995 Swiss francs from 1.5020. The euro advanced to $1.4387, from $1.4338.
Japanese bonds rose as today’s warning on prices signaled the central bank is unlikely to raise rates until inflation returns to the world’s second-largest economy. Governor Masaaki Shirakawa and his colleagues refrained from unveiling more policy actions, choosing instead to watch the effect of a 10 trillion yen ($111 billion) lending program adopted two weeks ago after the government urged them to do more to fight deflation.
Interest Rates
The bank also kept interest rates at 0.1 percent, as predicted by all 19 economists surveyed by Bloomberg. The central bank cut the rate to 0.1 percent a year ago, and 16 of 17 analysts who gave projections for next year said it will remain on hold for all of 2010.
The Swiss National Bank has been softening its intervention policy. SNB Governing Board member Thomas Jordan said Dec. 10 that while the bank will continue to intervene where needed on currency markets, bond markets have “considerably improved.”
The SNB’s failure to act yesterday “gave the idea to the market that maybe the SNB doesn’t care anymore,” said Lutz Karpowitz, a currency strategist in Frankfurt at Commerzbank AG, Germany’s second-biggest lender. “It would be a risky game to bet on more franc strength. If they stopped intervening, that would bring the euro-franc to levels they cannot accept.”
German business confidence rose to 94.7 this month from 93.9 in November, the Munich-based Ifo institute said, the highest since July 2008.
To contact the reporters on this story: Anna Rascouet in London at arascouet@bloomberg.netYasuhiko Seki in Tokyo at yseki5@bloomberg.net;
