TOKYO: The dollar and euro hit five-year highs against the yen in Asia yesterday as investors bet that the US Federal Reserve will announce a start to its long-awaited stimulus wind-down next week.
The dollar bought 103.86 yen in Tokyo afternoon trade from 103.36 yen in New York on Thursday, while the euro fetched 142.76 yen compared with 142.15 yen — both at highs not seen since October 2008. The single currency was also at $1.3743, from $1.3752.
The release in Washington on Thursday of data showing retail sales rose 0.7 percent in November — better than the 0.6 percent forecast — added to widespread speculation that the Fed will begin to cut its bond-buying this month.
While some analysts say the Fed may hold off until January, the upbeat sales figures bolstered the picture of a stronger US economy that does not need as much central bank support as it did at the start of the year.
“The conclusion must be that it is increasingly likely the much debated Fed taper begins next week,” National Australia Bank said. A reduction in the Fed’s $85bn a month programme will mean fewer dollars in circulation, which will in turn increase demand. The Fed holds its final policy meeting of the year on Tuesday and Wednesday.
The yen has also been pressured by a growing sense that the Bank of Japan will add to its own monetary easing scheme after a marked slowdown in the country’s third-quarter economic growth.
Dealers said a closely watched BoJ business confidence survey due Monday will give a better idea of the bank’s plans for its stimulus, which it put into effect in April.
“Investors will be looking for a cue to sell the yen stemming from the BoJ’s additional easing,” said Citigroup Global Market Japan chief forex strategist Osamu Takashima.
The yen has lost about a quarter of its value against the dollar since late last year when, as leader of the opposition, Shinzo Abe who is now prime minister promised a policy blitz to stoke the economy—later dubbed Abenomics.
Japanese officials including BoJ Governor Haruhiko Kuroda have hinted there may be more easing to come with a sales tax rise in April expect to take a bite out of consumer demand just as the world’s third-largest economy picks up.
Tokyo has announced a nearly $54 billion government spending plan to help blunt the impact of the rate hike.
AFP
