BLBG: Yen Drops to 2-Week Low as Kan Says Intervention Is an Option
By Yoshiaki Nohara and Ron Harui
March 12 (Bloomberg) -- The yen dropped to a two-week low against the euro as the government signaled it’s ready to intervene if necessary in currency markets and on prospects the central bank will increase easing measures next week.
The yen weakened against all 16 major counterparts after Japanese Finance Minister Naoto Kan said foreign-exchange intervention is always an option if currency movements are abrupt. Speculation the Bank of Japan will add more funds to the financial system to help end deflation also damped demand for the yen. The dollar headed for a fourth weekly gain against the pound before a U.S. report today forecast to show confidence among consumers increased.
“Policy makers are sending a consistent message to the market that they want the BOJ to do additional easing, which would result in a weaker yen,” said Hitoshi Asaoka, senior strategist at Mizuho Trust & Banking Co. in Tokyo. “The market’s focus is on whether the BOJ next week will announce a plan for such action or not.”
Japan’s currency fell to 124.18 per euro as of 6:58 a.m. in London from 123.82 in New York yesterday. It earlier dropped to 124.24, the weakest since Feb. 23. The yen traded at 90.63 per dollar from 90.51. It may slide to 95 per dollar by the end of this year, according to Asaoka.
The euro was at $1.3697 from $1.3681, having strengthened 0.5 percent this week. The dollar traded at $1.5058 per pound from $1.5062 yesterday and $1.5137 a week ago. Australia’s dollar was at 0.6690 euro from 0.6691, and bought 91.64 U.S. cents from 91.54 cents.
Intervention Option
The yen headed for a second weekly decline versus the dollar after Finance Minister Kan said today in parliament “if markets move too abruptly, I’m aware that we have the option of currency intervention, but in principle we should leave matters up to markets as long as movements are stable.”
Bank of Japan Governor Masaaki Shirakawa also told lawmakers in Tokyo today that the central bank will keep interest rates low to spur demand.
“Expectations remain strong especially among foreign investors that the BOJ will do more easing,” said Daisaku Ueno, president in Tokyo at Gaitame.Com Research Institute Ltd., a unit of Japan’s largest currency margin company. “Some foreign investors seem to be using the expectations in order to make yen-sell positions.”
BOJ Meeting
The Bank of Japan will hold a two-day policy meeting on March 16 and 17. The central bank’s easing options include expanding a 10 trillion yen ($110 billion) fund providing loans to banks, according to two central bank officials who spoke on condition of anonymity.
Japan is increasingly likely to intervene in foreign- exchange markets to stop the yen from rising, according to Morgan Stanley.
The probability Japan will sell the yen has climbed to 47 percent, the highest since 2004, said Sophia Drossos, co-head of global foreign-exchange strategy at Morgan Stanley. The prediction is based on a company model that uses indicators such as market positioning and changes in momentum.
“The heightened risk of yen intervention indicated by our model suggests that the level of the exchange rate is out of step with underlying fundamentals,” New York-based Drossos wrote in a note to clients yesterday.
‘Bullish View’
The Reuters/University of Michigan final index of consumer sentiment for March rose to 74 from 73.6 in February, according to economists surveyed by Bloomberg. The report is due today.
“Given our bullish view on the short-term U.S. growth outlook, the dollar has more room to appreciate in the second quarter,” David Woo, London-based global head of foreign- exchange strategy at Barclays Plc, wrote in a research note yesterday. “Stronger U.S. data usually lead the market to expect tighter U.S. monetary policy, which makes the dollar more attractive.”
The Federal Open Market Committee is forecast to keep its benchmark interest rate unchanged on March 16, according to all 85 economists in a Bloomberg News survey.
The euro may rise to a five-week high against the yen after breaking through a key level of resistance, according to Toshiya Yamauchi, manager of currency margin trading at Ueda Harlow Ltd. in Tokyo.
The 16-nation currency is in an uptrend after climbing above the “baseline” of an ichimoku chart, Yamauchi said. Resistance refers to an area where sell orders may be clustered. The euro also advanced above its 21-day moving average, gaining upward momentum, Yamauchi said.
The currency is set to test resistance at 125.28 yen, Yamauchi said. That level represents a 38.2 percent Fibonacci retracement of the currency’s decline from 134.38 yen on Jan. 11 to 119.66 yen on Feb. 25, the lowest in a year.
“If the euro breaks that level, it may try to advance above 126 yen,” Yamauchi said.
The level is near the lower end of the ichimoku cloud, he said. The last time the euro traded above 126 was Feb. 4.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
