Yen weakens, monetary stimulus to boost Japan’s economy

Bloomberg

The yen fell, headed for a second weekly decline, amid speculation that further monetary stimulus to boost Japan’s struggling economy is now inevitable — whether or not it comes at next week
central-bank meeting.
The Bank of Japan’s next monetary policy statement is due July 29, though Mizuho Bank Ltd says officials may well refrain from cutting their negative main interest rate or increasing asset purchases at that gathering. Yet speculation more currency depreciating stimulus is on its way is building, with the government said to be discussing about 3 trillion-yen (US$28.3 billion) of supplementary spending for the current fiscal year.
“The yen should still be a sell in the run-up to the BOJ and supplementary budget announcements,” said Neil Jones, head of hedge-fund sales at Mizuho in London. “While there’s a risk of no change in policy on July 29, I still think it’s just a matter of time before there’s further stimulus for Japan.”
The yen, commonly regarded as a haven because of the Asian nation’s current-account surplus, has undone the advance that followed the UK’s June 23 decision to leave the European Union. The dollar, by contrast, is headed for a third week of gains versus its major peers as futures traders price in a higher prospect of a US rate increase by year-end.

Helicopter Money
The yen weakened 0.4 percent to 106.23 per dollar, leaving it down 1.3 percent on the week.
Japan’s currency climbed Thursday after BOJ Governor Haruhiko Kuroda dismissed the idea of so-called helicopter money as a way of injecting cash into the economy. It pared its gains as it emerged that the interview with BBC Radio was conducted before last month’s UK referendum. The yen touched 107.49 per dollar on Thursday, the weakest level since June 7.
The pound fell 0.8 percent Friday to US$1.3124, reversing a weekly advance, as the first set of UK data to capture the period since the Brexit vote showed the largest part of the economy in contraction.
US policy makers will meet on July 26-27 after saying they held interest rates unchanged in June to wait for more information on the health of their economy and to assess the fallout of Britain’s
decision to quit the EU.

Dollar Index
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 0.7 percent this week. Futures prices compiled by Bloomberg imply a 45 percent chance of the Federal Reserve lifting interest rates by December, up from 12 percent at the start of the month. There’s only an 8 percent chance of an increase at next week’s gathering.
“What the investors will look out for is their post-decision statement,” where the message may be that “the U.S. economy is on a more solid footing than it was in June,” Bernard Aw, a strategist at IG Group Holdings Plc in Singapore, said in a note. “This would set the stage for the next interest-rate hike if economic data hold up in the coming months.”
The Australian and New Zealand dollars dropped this week — the Aussie headed for its first decline since May — amid bets their central banks will also expand easing. Australia’s currency fell 1.4 percent since last Friday to 74.76 US cents, while its neighbor’s slipped 1.8 percent to 69.90 cents.
The Reserve Bank of Australia said this week the economy probably cooled last quarter and that inflation is set to remain weak, while its New Zealand counterpart said further monetary easing is probably needed to boost prices. Both will lower interest rates when they meet next month, according to economists surveyed.
“The market is anticipating stimulus from all three of these central banks,” said Ric Spooner, chief market strategist in Sydney at CMC Markets Plc, referring also to the BOJ. “The longer-term view is bearish for all of those currencies.”