Forex – Yen tumbles 1% on Japan stimulus reports

Japanese national flags flutter in front of buildings at Tokyo’s business district in Japan, February 22, 2016. REUTERS/Toru Hanai

The yen tumbled against the dollar on Wednesday, pressured by multiple reports from Japanese media about how big the country’s soon-to-be announced fiscal stimulus package would be and ahead of the latest monetary policy decision from the Federal Reserve.

The dollar hit highs of 106.54 against the yen and was last at 105.65 by 07:35GMT, or 3:35AM ET, up 0.97% on the day, with traders taking cues from various headlines regarding Japan’s economic stimulus package.

Reuters reported, citing Japanese media agency Jiji, that Prime Minister Shinzo Abe and his government will compile a stimulus package of nearly 28 trillion yen, or $265.3 billion, to prop up Japan’s flagging economy. That would be bigger than earlier reports of a possible headline figure of around 20 trillion yen.

Meanwhile, the Wall Street Journal reported that Japan was considering issuing 50-year bonds, but later the Ministry of Finance denied that it was considering issuing such debt.

In addition to the details of Japan’s fiscal stimulus package, the focus now is on the Bank of Japan’s policy decision due on Friday, with expectations running high that the BOJ will expand its monetary stimulus.

Local business daily, Nikkei, reported that policymakers were mulling over multiple stimulus proposals. According to reports, the main options were to cut interest rates beyond the current level of negative 0.1%, buy more Japanese government bonds on top of the current 80 trillion yen annually, or expand purchases of other assets such as exchange-traded funds.

The dollar dropped to as low as 103.98 on Tuesday amid speculation that Japan’s soon-to-be announced stimulus package will disappoint markets.

Meanwhile, market players looked ahead to the outcome of the Federal Reserve’s July policy meeting later in the day for fresh guidance on the future path of U.S. interest rates.

While the Fed is not expected to take action on interest rates, market players will scrutinize wording in its policy statement for fresh hints on the timing of interest rate hikes over the next several months.

A recent string of better than expected U.S. data reignited speculation that the Fed will raise interest rates before the end of the year. Fed funds futures are currently pricing in a 20% chance of a rate hike by September. December odds were at 52%, compared with less than 10% at the start of this month.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 97.30 early on Wednesday, not far from a more than four-month high of 97.59 hit on Monday, boosted by the diverging monetary policy outlook between the Fed and other global central banks.

 

Source: Investing.com