Yen holds worst annual drop since 1979

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YenNotes

Reuters.

Singapore - The yen remained lower after its biggest annual decline since 1979 amid prospects the Bank of Japan will continue unprecedented stimulus measures to support the economy and end more than a decade of deflation.

Japan’s currency extended losses as BOJ Governor Haruhiko Kuroda said, in an interview published yesterday in Yomiuri newspaper, that policy makers will continue stimulus until inflation stabilises at 2 percent.

Monetary policy in Japan is diverging from the US, where the Federal Reserve is expected to end bond purchases this year.

Australia’s dollar weakened as a private survey echoed yesterday’s official data showing manufacturing growth moderated in China.

“The yen will depreciate further,” said Janu Chan, economist at St. George Bank Ltd. in Sydney.

“There is still that prospect of the Bank of Japan stepping up their quantitative easing, meanwhile the US is unwinding theirs.”

The yen traded at 105.30 per dollar as of 6:44 a.m. in London after closing at 105.31 on December 31.

It fell 18 percent in 2013.

Japan’s currency traded at 144.76 per euro from 144.73 at the end of last year.

The euro was at $1.3748.

The Australian dollar bought 89.16 US cents, little changed after tumbling 14 percent in 2013.

Japan’s markets are shut today for a holiday.

The BOJ maintained a pledge to expand Japan’s monetary base by an annual 60 trillion to 70 trillion yen ($665 billion) at a gathering last month.

In April, policy makers doubled monthly bond purchases to more than 7 trillion yen to end 15 years of price declines.

 

Inflation Goal

 

Kuroda said achieving 2 percent inflation in two years is the BOJ’s goal, according to the Yomiuri article.

The central bank won’t necessarily end or scale back its stimulus program in two years, he said, according to the interview.

Fed officials said December 18 they will trim the US central bank’s monthly bond buying to $75 billion from $85 billion.

The central bank will probably reduce its purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, according to the median estimate of economists surveyed by Bloomberg on December 19.

The Australian dollar earlier traded lower from its year- end close after a gauge of Chinese manufacturing by HSBC Holdings Plc and Markit Economics fell to 50.5 last month from 50.8 in November, indicating slower expansion.

Government figures released yesterday showed a separate index for factory output fell for the first time in six months to match an August reading of 51.

Australia’s 10-year government bond yield climbed nine basis points to 4.33 percent.

 

Manufacturing Boost

 

The euro held an annual gain against the dollar before a report today that economists estimate will show a gauge of factory output in the common-currency region climbed to a 31-month high in December.

That would confirm the initial reading published by Markit on December 16.

European Central Bank policy makers meeting January 9 will leave benchmark interest rates unchanged at 0.25 percent, according to a Bloomberg survey median.

“Recent ECB comments suggest little chance of another rate cut anytime soon,” Mitul Kotecha, global head of currency strategy at Credit Agricole Corporate & Investment Bank in Hong Kong, wrote in a note today.

“Against this background any euro slippage in the short term is likely to be limited.”

Latvia became the 18th member of the euro area yesterday and will become the fourth former communist country to adopt the currency after Slovakia, Slovenia and neighbouring Estonia.

Opponents of the switch outnumber proponents two-to-one in the country of 2 million, according to opinion polls.

The resentment is stoked by concern that prices will rise and the country will be forced to take on new responsibilities in the currency union.

Singapore’s dollar fell, extending a 3.3 percent loss in 2013 that was the biggest in 12 years, after a government report today showed the economy shrank for the first time in five quarters.

The Singapore currency lost 0.2 percent to S$1.2654 versus its US counterpart. - Bloomberg News


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