Yen dives on report Japan set to unveil huge $348b stimulus

A man looks at an electric quotation board flashing share prices of the Tokyo Stock Exchange in front of a securities company in Tokyo on July 26.
A man looks at an electric quotation board flashing share prices of the Tokyo Stock Exchange in front of a securities company in Tokyo on July 26.PHOTO: AFP

TOKYO (AFP) - The yen fell sharply on Wednesday (July 27) in response to a report that Japan's government will unveil a massive 27 trillion yen (S$348 billion) stimulus package to boost the stumbling economy.

The US dollar jumped as high as 106.54 yen from around 105.01 yen in the morning and 104.64 yen in New York, after Fuji Television said Prime Minister Shinzo Abe will announce details of the package on Wednesday afternoon.

The euro jumped to 117.15 yen, from below 115 yen in US trading.

Mr Abe promised a stimulus - which reports have varied at being worth 10 to 30 trillion yen - after Britain's vote last month to quit the European Union sparked a rally in the yen that threatened profits at Japan Inc.

Traders tend to buy Japan's currency as a safe bet in times of turmoil or uncertainty, but it makes the country's exporters less competitive overseas.

Wednesday's report comes as speculation mounts that the Bank of Japan will further ease monetary policy after a two-day meeting Friday.

The government and central bank have come under increasing pressure to do more as a string of weak readings and sagging business confidence highlight a long-running weakness Japan's economy.

BOJ governor Haruhiko Kuroda is widely expected to announce a fresh stimulus on Friday.

"Market pricing has never been so certain of more easing, so if the BoJ doesn't act, it'll be a really big disappointment," Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities, told Bloomberg News.

Mr Kuroda, who took the helm at the BoJ more than three years ago, has overseen a massive asset-buying plan that now stands at an unprecedented 80 trillion yen annually. The scheme is a cornerstone of Abe's push to beat years of deflation and kickstart growth.

But while Mr Kuroda has insisted the central bank's target to reach two-per cent inflation is realistic, the BOJ has been forced to push back its timeline for meeting that goal several times.

"If governor Kuroda sticks to the same optimistic economic scenario he's presented in the past, there's a risk dollar-yen will break 100," said Osamu Takashima, a Tokyo-based strategist at Citigroup.

"Expectations have built up so much, the yen will eventually strengthen against the dollar whether the BOJ acts or not."

Mr Kuroda has repeatedly denied launching so-called helicopter money - where the bank funnels cash directly into the economy, such as by putting cash into people's bank accounts - rather than the more traditional bond-buying method.