The yen slid to a near four-year low against the dollar and three-year trough against the euro on Monday as the Bank of Japan began buying government bonds as part of its aggressive stimulus policy. The dollar looked set for further gains, and a potential test of the 100 yen mark, as a setback from weak US jobs data on Friday proved short-lived.
The US currency hit 99.03 yen on trading platform EBS, breaking above a reported options barrier at 99 yen to hit its highest since May 2009. It was last up 1.1 percent on the day at 98.67 yen. Traders said it may run into selling before 100 yen due to other barriers but these were not expected to hold for long.
"The fleeting impact of the weak US payrolls data shows a strong appetite to sell the yen and buy dollars. It has reinforced confidence that the yen weakening trend is intact," said Lee Hardman, currency economist at BTMU, who said the dollar looked well on target to surpass 100 yen. However, it was unclear whether the yen would maintain this pace of weakening, with the dollar having gained more than 14 percent already this year, and its falls could be tempered by further evidence of a slowing US economy.
New governor Haruhiko Kuroda said last week the BoJ would inject about $1.4 trillion into the economy in less than two years, sending bond yields plummeting as prices rose on expectations of massive debt purchases by the central bank. Since then, the yen has fallen more than 6 percent against both the dollar and euro.
The BoJ conducted its first bond-buying operations on Monday, saying it would buy 1 trillion yen of government bonds with maturities between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years. Analysts expect the flood of new money will be partly used by Japanese investors to buy higher-yielding assets abroad, putting further downward pressure on the yen.
J.P. Morgan analysts wrote in a client report that they had re-initiated a basket of yen shorts and were recommending the Australian dollar and Brazilian real as carry trades against the yen after the BoJ announced its stimulus plan. The higher-yielding Australian dollar hit 102.85 yen, its highest since July 2008, before the collapse of Lehman Brothers.
The euro climbed 1.4 percent on the day to hit its highest since January 2010 at 128.755 yen. It shrugged off concerns about Portugal's ability to keep its bailout programme on track after its constitutional court rejected some of its austerity measures. These worries were offset by sharp falls in the borrowing costs of Spain and Italy due to demand for higher yielding euro zone bonds from Asia after the BoJ plan. The euro was up 0.2 percent at $1.3025, hovering near a two-week high of $1.3040 set on Friday after the weaker-than-expected US jobs growth data.
Analysts said that although the euro would be overshadowed for now by moves in the yen, the outlook for the single currency was clouded by concerns about economic slowdown in the euro zone and speculation the European Central Bank could ease policy. "I am bearish on the euro. The economic situation has deteriorated and the ECB will be under a lot of pressure to become more adventurous," said Beat Siegenthaler, currency strategist at UBS, who forecast the euro would edge lower to $1.28 in three months' time.
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