Yen Near Three-Month Low After BOJ Stands Pat, Delays Price Goal

(Bloomberg) -- The yen approached a three-month low after the Bank of Japan maintained its monetary stimulus and delayed the projected timing for reaching its inflation goal beyond Governor Haruhiko Kuroda's term.

The Japanese currency fell for a second day against the dollar after the central bank maintained its asset purchases at 80 trillion yen ($762 billion) annually. It also kept its target for the 10-year government-bond yields at around zero percent, and left the policy rate on a portion of commercial bank reserves at minus 0.1 percent. All but two of the 43 economists surveyed by Bloomberg predicted no additional easing Tuesday.

“It looks as though the least anticipated BOJ meeting of the year will quite rightly produce the least market impact,” said Sean Callow, a senior strategist at Westpac Banking Corp. in Sydney. “Normally, we at least get a knee-jerk dip in dollar-yen on a steady hand, but today the market seems to have been fully prepared for the outcome.”

The yen weakened less than 0.1 percent to 104.85 per dollar as of 9:20 a.m. in New York. It reached a three-month low last week. Japan's currency has outperformed its developed-market peers this year, surging almost 15 percent against the U.S. currency through the end of October, amid doubts that the BOJ governor had adequate tools left to revive the economy.

Kuroda's term ends in April 2018 and the BOJ now sees 2 percent inflation being met sometime in the fiscal year that starts that month. Prices as measured by the BOJ's primary inflation gauge have fallen for seven consecutive months.

“The key thing now for the currency markets will be to see whether inflation starts to pick up,” said Mansoor Mohi-uddin, a Singapore-based strategist at Royal Bank of Scotland Group Plc. “If inflation still keeps undershooting its forecasts then the BOJ may cut its short-term deposit rate from minus 0.1 percent at the next couple of meetings.”

Election Outcome

The yen's direction in the coming weeks will depend on the outcome of the U.S. presidential elections next week and whether the Federal Reserve will tighten monetary policy this year, Mohi-uddin said. The currency will weaken toward 110 per dollar if Democrat candidate Hillary Clinton wins, he said.

The market-based probability of the Fed raising rates by the end of December climbed to 73 percent from under 60 percent at the end of September. While the Bloomberg Dollar Spot Index had its best October since 2008 with a 2.2 percent surge, further gains may be limited in the near term due to political tensions.

“People still expect a rate hike in December, but that depends on who wins the elections and upcoming jobs data,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The market will be watching closely the latest polls to assess the political situation. It leaves the dollar vulnerable as the market is pricing in very little risk of” Republican candidate Donald Trump winning.

--With assistance from Anchalee Worrachate and Susanne Barton To contact the reporter on this story: Netty Ismail in Singapore at nismail3@bloomberg.net. To contact the editors responsible for this story: David Goodman at dgoodman28@bloomberg.net, Keith Jenkins