Yen sags on massive fiscal stimulus plan reports, BOJ expectations

SINGAPORE: The yen fell yesterday, pressured by expectations of further monetary easing by the Bank of Japan and amid media reports that the Japanese government will soon unveil a US$265 billion stimulus package.

Trading in the yen was choppy, with traders taking cues from various headlines regarding Japan’s economic stimulus package.

The yen fell after Japan’s Fuji TV said Prime Minister Shinzo Abe was planning to announce a stimulus package with a headline figure of around 27 trillion yen.

Abe was later quoted by Jiji news agency as saying the stimulus package, to be announced next week, would total more than 28 trillion yen (US$265.48 billion), including 13 trillion yen of ‘fiscal measures’.

That would be bigger than earlier reports of a possible headline figure of around 20 trillion yen.

“We believe that current expectations are for the fiscal package to be done in conjunction with expanded monetary easing,” said Lee Jin Yang, macro research analyst for Aberdeen Asset Management in Singapore.

“This belief has been causing dollar/yen volatility with the fluctuations in the reported size of the fiscal stimulus.” The yen extended its drop after the Wall Street Journal reported that Japan was considering issuing 50-year bonds, stirring renewed market speculation about the possibility of debt monetisation, but later pared some losses after the Ministry of Finance denied that it was considering issuing such debt.

The dollar last traded at 105.65 yen, up 1 per cent on the day.

The greenback had risen by as much as 1.8 per cent to 106.54 yen at one point, still some way off a six-week high of 107.49 yen set last Thursday.

The focus now is on the Bank of Japan’s policy decision due on Friday, with expectations running high that the BOJ will expand its monetary stimulus.

“There’s still room for disappointment from the Bank of Japan,” said Stephen Innes, senior trader at FX broker OANDA.

“The market’s really building up expectations...We’ve seen this many times before, these expectations can reverse very quickly,” he added. Most market players expect the Bank of Japan to announce more easing measures on Friday, including deepening negative interest rates and increasing its purchases of riskier assets such as stocks as well as government bonds. — Reuters