Yen plunges the most since 2014 on Abe's fiscal stimulus plans

A picture illustration shows Japanese 10,000 yen notes.
A picture illustration shows Japanese 10,000 yen notes.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - The yen tumbled by the most since October 2014 as Japanese Prime Minister Shinzo Abe said he planned to add fiscal stimulus following 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, speaking in Tokyo on Monday (July 11), repeated his pledge for action on a stimulus package. He will order measures to support domestic demand, including plans to speed up the construction of high-speed trains. Demand for haven, which has supported the yen, was curbed as US equities surged to an all-time high.

The yen tumbled because "the Bank of Japan is likely to add to the macroeconomic stimulus package by easing monetary policy along with a more supportive fiscal environment", said Mr Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank. The election "opens up the scope for sweeping reforms. There's also a large overhang in yen positions".

The Japanese currency has strengthened 17 per cent this year versus the US dollar, even with the Bank of Japan's bond-buying and a negative-rate policy. That has confounded government officials who would prefer a weaker yen to boost exports and stoke inflation amid a slowing global economy.

The yen fell 2.3 per cent to 102.80 per US dollar at 5pm in New York, its steepest slide since October 2014. It dropped 2.3 per cent to 113.68 per euro.

In the US, the Standard & Poor's 500 index rose to a record high and European equities gained for a third day after Mrs Andrea Leadsom withdrew her candidacy for the role of Britain's prime minister and cleared the way for Home Secretary Theresa May, who is set to succeed Mr David Cameron.

"It's suggesting less demand for the yen as a haven," said Mr Eric Viloria, a currency strategist at Wells Fargo & Co. "To look at the movement today, it's more of a stable market backdrop."

Mr Abe will hold a Cabinet meeting on economic measures to consider more than 10 trillion yen (S$131.6 billion) in stimulus, and the government is considering issuing new debt for the first time in four years, according to a report from the Nikkei. Japan's Topix index of stocks surged the most since February.

"Should the government go ahead with economic measures, the size of stimulus could be large," said Mr Yuji Saito, Tokyo-based head of the foreign-exchange department at Credit Agricole SA. "These expectations are spurring a surge in stocks and selling of the yen."

Bullish bets on the yen last week approached the record reached in April, a report from the Commodity Futures Trading Commission showed. The currency climbed to as high as 99.02 per US dollar for the first time since 2013 on June 24, after the Brexit vote. It's often used as a haven because of Japan's current-account surplus.