The yen hit fresh lows against a host of major currencies on Monday, resuming its slide after the Bank of Japan lost no time in launching its new easing policy to underline its determination to beat deflation. The central bank conducted its first government bond buying operations on Monday and said it will buy 1 trillion yen of JGBs with maturities of between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years.
The US dollar gained 1 percent to 98.54 yen after jumping more than a full yen to 98.85, its highest since June 2009 according to the EBS trading platform. "After a big spurt in the morning, it started to stick a bit, but the possibility of it getting to 100 has increased," said Soichiro Tsutsumi, a trader at eWarrant Japan Securities K.K.
Last week, new BoJ Governor Haruhiko Kuroda said the central bank would inject about $1.4 trillion into the economy in less than two years, a gamble that sent bond yields plummeting as prices rose on expectations of massive purchases of debt by the BoJ. Analysts assume that the flood of new money will be partly used by Japanese investors to buy higher yielding assets abroad, putting 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 aggressive stimulus plan.
The Aussie was up 0.2 percent against the yen at 102.12 yen after rallying to 102.32 yen, its highest since July 2008. The euro climbed as far as 128.43 yen, its highest since January 2010, before pulling back to 127.90 yen, 0.9 percent higher than late US levels on Friday. Some analysts said that a flare-up in the euro zone's problems could ramp up risk aversion, prompting investors to buy "safe haven" yen and put a floor under its slide. Others said signs of cracks in the US economic recovery could weigh on the dollar.
"Getting to 100 yen against the dollar is just a matter of time... But US data has been a bit mixed and if we have more negative data, then the dollar-yen could come under pressure," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. Underwhelming US payroll data out on Friday barely dented the greenback's gains against the Japanese currency as yen bears continued to celebrate the BoJ's aggressive stimulus plan.
"Kuroda's impact simply overshadowed the disappointing US data. I think the biggest obstacle for the yen will be people paying attention to the rising cost of imports and Japan's trade deficit," said Soichiro Tsutsumi, a trader at eWarrant Japan Securities. A weakening yen has ramped up the cost of Japan's energy imports, with February's trade deficit of 777.5 billion yen ($8 billion) the widest on record for that month.
Since the BoJ unleashed the world's most intense burst of monetary stimulus last week, the yen has slumped more than 6 percent against both the dollar and euro. "We expect further weakness ahead, given the bank's clear commitment to achieve its 2 percent (inflation) target," analysts at Barclays Capital said, adding they see the US dollar rising to 103 yen in three months. The euro slipped 0.1 percent against the greenback to $1.2982, hovering near a two-week high of $1.3040 set Friday after weaker-than-expected employment growth cast a shadow on the US economic recovery picture.