Yen rally ends as Abe pledges fresh stimulus

Japan's currency weakened against all of its 31 major peers yesterday.
Japan's currency weakened against all of its 31 major peers yesterday. PHOTO: EUROPEAN PRESSPHOTO AGENCY

Japan's PM calls for 'bold measures'; central bank set to expand bond, equity purchases

TOKYO • The yen's four-day rally ended yesterday as investors' focus shifted to Japanese Prime Minister Shinzo Abe's plans for fiscal stimulus after the ruling party's victory in Sunday's Upper House elections.

Japan's currency weakened against all of its 31 major peers after Mr Abe repeated on Sunday night his pledge for action on a stimulus package, saying on public broadcaster NHK that "I want the swift formulation of comprehensive, bold economic measures" while declining to comment on the amount of such stimulus.

The Bank of Japan (BOJ) is set to announce an expansion of its monthly bond and equity purchases on July 29, and Mr Abe will probably introduce fiscal stimulus by the year's end, according to Macquarie Bank.

"This is good news for anybody who's keen to get long dollar-yen" ahead of the July 29 BOJ meeting, said Mr Gareth Berry, a Macquarie foreign exchange and rates strategist in Singapore. "Give it another three weeks and dollar-yen bulls' patience will be rewarded."

The yen fell 0.7 per cent to 101.21 per US dollar at 1.53 pm in Tokyo. It had strengthened 2 per cent in the four days to last Friday. Against the Singdollar, it dropped 1.27 per cent to 1.3217.

Mr Abe will order the compilation of a stimulus package today, the Nikkei newspaper reported... He will hold a Cabinet meeting on economic measures to consider more than 10 trillion yen (S$132 billion) in stimulus, and the government is considering issuing new debt for the first time in four years.

While the yen will probably weaken towards 108 to 110 against the greenback on any additional BOJ easing, US dollar selling around those levels will push the Japanese currency back towards 105, Mr Berry said.

Mr Abe will order the compilation of a stimulus package today, the Nikkei newspaper reported, without attribution.

He will hold a Cabinet meeting on economic measures to consider more than 10 trillion yen (S$132 billion) in stimulus, and the government is considering issuing new debt for the first time in four years, according to the report.

The supply of new government debt would allow the BOJ to ease more, Mr Berry said.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, advanced 0.1 per cent. Futures trading indicates that the odds of a Federal Reserve rate hike by year-end rose to 21 per cent last Friday, from about 12 per cent a day earlier, after a report showed the US created 287,000 jobs in June, surpassing economists' expectations.

"The US dollar is only slightly firmer as interest rate markets have only slightly firmed the chances of a Fed rate hike this year," said Mr Imre Speizer, a market strategist with Westpac in Auckland.

"That still appears too light, so there's scope for further upside in both during the week ahead."

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A version of this article appeared in the print edition of The Straits Times on July 12, 2016, with the headline 'Yen rally ends as Abe pledges fresh stimulus'. Print Edition | Subscribe